Personal Money Management 101

How to Read a Financial Statement : Cash Flow Statement

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The last (but certainly not least important) financial statement is the cash flow statement. This statement shows the movements of cash into or out of the business. No matter how healthy the profit & loss account and balance sheet may appear, without sufficient cash a business will fail.

Cash Flow Statement
Operating Profit 305
Depreciation 50
Increase in Stocks (25)
Increase in Debtors (60)
Increase in Creditors 18
Operating Cash Flow 288
Interest Paid (15)
Dividends Paid (65)
Taxation (42)
Captal Expenditure (33)
Cash Flow before Financing 133
Decrease in Bank Loan (5)
Issue of Share Capital 25
Total Financing 20
Movement in Cash 153

The Operating Profit (from the Profit and Loss Account) is adjusted for non-cash items.

  • Depreciation is added back in.
  • Any increase (decrease) in inventory is subtracted (added).
  • Any increase (decrease) in debtors is subtracted (added).
  • Any increase (decrease) in creditors is added (subtracted).

These adjustments give the Operating Cash Flow.

From the Operating Cash Flow the following are subtracted to give Cash Flow before Financing:

  • Interest paid.
  • Dividends.
  • Taxation (actually paid in year).
  • Capital expenditure (eg on fixed assets).
  • Any other exceptional costs (eg settling a legal action).

Financing shows cash generated from or lost to external financing, eg changes in loans, issues of share capital etc.

Movement in Cash is the sum of Cash Flow before Financing and Total Financing, and must agree with the change in cash figures on the current and previous year's balance sheets.