Which way does the Cash Flow? - Aridni
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Which way does the Cash Flow?

If the three types of business activities are operating, investing, and financing, then there needs to be a way to provide information about the money going into and out of each piece. Thankfully through the miracle of modern accounting, we have a statement that does exactly that.

The statement that tracks these fluxuations in the cash flow is quite logically called, the ‘Statement of Cash Flows’. From this statement you can easily determine how a company is treating that little recourse that they work so hard to aquire.

Here is a sample statement to show you the three areas and their relationship to each other. You can see that it is in essence three cash flow statements (one for operating, one for investing, and one for the financing activities) wrapped up into one overall master statement.

Statement of Cash Flows
For the month ending December 31, 3000
(In Gazillions of Planet Aridni Dollars)
Cash Flows from operating activities
Cash receipts from operating activities
Cash payments for operating activities
Net cash provided by operating activities $5,700
Cash Flows from investing activities
Purchased office supplies (5,000)
Net cash used by investing activities (5,000)
Cash Flows from financing activities
Issuance of common stock
Issued note payable
Payment of dividend
Net cash provided by financing activities 14,500
Net increase in cash 15,200
Cash at beginning of period 0
Cash at end of period 15,200

If the operating activities result in a negative number, this is certainly a red flag for any established business. Have they lost the ability to make money? While the investing and financing activities can be a loss without nessicarily being harmful to the company.

If the company is not making enough from operations to cover their investing activities, this could be a red flag if it continues. Or it could be that they are simply paying for a loss with other financial activities.

It’s important to check that a company can generate sufficient cash from it’s operations to fund it’s investing activities.