What is a Statement of Cash Flow? Let’s get to know about it!

Due to the economy in the present time, “Money” or “Profit” might be the first thing that comes to mind for those who want to invest such as Trading, Mutual Fund or Self-employed. The money that is used to run the business is the cash that we use in our daily life. Today, for those who want to have a better method to manage the flow of the cash and have a better understanding about the cash should check this content out! Let’s get to know more about the Statement of Cash Flow, shall we?

What is a Statement of Cash Flow?

It is the financial statement that shows the origin of money and the transaction which includes the sources of the money and what the money can be used with. It is a must for people who want to start their own business and they need to have a good understanding to make the cash flow. Activities in the Statement of Cash Flow can be categorized in 3 sections.

1.Cash Flow From Operation: Cash flow from running a business. For example, Coffee shops get the cash flow from buying ingredients, selling beverages and employees’ salaries. It will not count an overdue list or a credit purchase as a cash flow from operation. In case that the cash flow from operation is positive, it means that there is more income than expenses. On the other hand, if the cash flow from operation is negative, it means expenses are more than income.

2.Cash Flow From Investing: Cash flow from an investment. It will show the source of long-term buying and selling of property such as Mutual Fund, Stocks or Land Purchase. Most cash flow from investing is “Negative” since the money is used to invest like buying buildings to expand the business. As a record, investment has risk that will lead to loss. So, we should consider carefully if it is worth investing. Moreover, if the cash flow from investing is positive it means that we receive the money from selling property.

3.Cash Flow From Financing: Cash flow from the money that goes in and out through a company’s fund such as Stocks repurchasement, Bank loan and Dividend payment. Cash flow from financing is about the supply of company’s money. In case that it is positive, it means that the company receives a lot of money including money from bank loans and issuance of debentures. If it is negative, it means that the company spends a lot of money on things such as dividend payment, stock repurchasing and loan repayment. 

As mentioned, three of them have some differences. Some is good if the cash flow is positive, some is good if the cash flow is negative. However, these 3 sections are important in order to notice the change in increasing and decreasing. Thus, we need to pay attention to every section. If there is no money to run a business, it will cost the business to collapse even though there is some profit.