¿Qué puedes aprender de la preparación de un estado de flujo de efectivo?

Cash Flow Statement forms an integral part of the financial statements which explain the movement of cash for the particular period, classified into 3 categories: 1. Operating activities reports the net cash profit generated from the core activities after making adjustments to non-cash activities such as depreciation, finance cost, allowance for ECL, provision for EOSB etc. 2. Investing activities explains net cash surplus or deficit from investing in fixed assets & investment properties, investment in other companies, dividend earned etc. 3. Financing activities accumulate the net cash movements related to funds borrowed & repaid, receipt of additional capital, interest paid, financial support from shareholders and associated companies.

A cash flow statement is a crucial financial tool for a company, providing a detailed view of cash inflows and outflows from operations, financing, and investments. It helps identify potential cash flow issues, aids in proactive management, and guides strategic decision-making, ensuring a company's financial health and liquidity.

Cash flow is, in my opinion, the most accurate report to know the situation of the company in the short term. Other reports as BS or PL will show us the most complete and detailed picture of the company's operations, its weaknesses and strengths, but only the liquidity and especially the cash cycles will be the real reasons to make decisions in the short term. Depending on the type of company, these decisions can be at the heart of its success in a given project. A professor once taught me that "companies die due to lack of cash" and experience has taught me that this is absolutely true. That is the reason why the design, planning and execution of an accurate and real cash flow is the most important thing in the finance department.

Cash flow is a superb way of knowing the blood stream of the business, understanding where negotiation is required, what capital growth step you need to take and what are the levers that can change the game.

From a startup business perspective - Cash flow is vital for startup success, ensuring uninterrupted operations and providing flexibility for seizing opportunities and navigating challenges. It is essential for servicing debts, maintaining positive relationships with creditors, and attracting investor confidence. Reflecting long-term viability, positive cash flow signals a startup's ability to generate more cash than it spends over time. Effective cash flow management aids in risk mitigation by proactively addressing potential shortages. In essence, cash flow is the linchpin for startup sustainability, facilitating operations, flexibility, investor appeal, and long-term success.

In my experience, the financial elements that are presented in the cash flow report are important, since can actually provide useful information regarding the company’s competence to generate cash over its operations and where exactly to use these cashflows. When a Company fails to produce cash and profits, then is not able to cover its operational needs, financial and investing activities. A business fails due to the lack of cash to cover current obligations and not to the lack of profits.

The statement of cash flow is another important report of the financial statement that shows the movement of cash for a period. The cash flow statement only considers cash transactions. Non cash transactions like depreciation is added back to the profit for the period. The closing balance of the cash flow statement is transferred to the statement of financial position or balance sheet as bank balance.

Preparing a cash flow statement offers valuable insights into a company's financial health and operational efficiency. Key takeaways include assessing operating, investing, and financing cash flows, understanding liquidity positions, analyzing trends, projecting future cash flows, and evaluating debt service ability. The statement aids in gauging a company's ability to generate positive cash flow, manage working capital effectively, and make informed financial decisions. Investors and creditors use it to assess risk and financial strength, making the cash flow statement a crucial tool for comprehensive financial analysis

Cash flow is one statements of the full set financials, it help summarize and represent all the cashflows during the year, either in or out cashflows, it tells us directly where the collected cash expensed, and exposes any manipulation in the profit and lost figures, it also gives an insight about the real situation of the entity in terms of liquidity, it can be prepared using indirect and direct method, companies prefer to use the indirect method as it is easier and even if they use the other approach the direct method they need to include a reconciliation using the indirect method.

Classify each transactions to operating, investment and financing. Then Evaluate operating cash flow as follows; Understand your ability to generate cash from core operations, which is crucial for paying ongoing expenses and short-term obligations.

IAS 7 - Cash Flow Statement provides detailed guidance on classification and presentation using direct and indirect method. The Direct method adopts simple approach of reporting real cash inflows and outflows. This method is used in case of small business like groceries or cash-oriented business, start-up firms. Indirect Method - Net profit is considered as start point followed by various adjustment on cash activities and changes in working capital to arrive operating activities. Complex business like MNCs, Manufacuring companies use this method. The choice between both the methods is dependent on various attributes including industry norms, the complexity of operations, compliance reporting framework, and management preferences etc.

Select them method, calculate the balance sheet movement then adjust on noncash item such as depreciation and amortization then recorded cash inflow and outflow from operating, investing and financing activities.

Cash flow from operating activities shows the results from operations. How much where we able to generate from operations and how much was spent as a result of business operations.

Figures reported in the operating cash flows is one of the factors considered while assessing going concern of the business. One can understand the cash conversion cycle and effective management of working capital. As shorter cash conversion cycle is indicates that the company is converting its investments in stock and various resources into cash from earning revenue.

Understanding how much cash is coming in and going out. Assess efficiency of operations Let's you evaluate investment and financing decisions

Operating cash flow (OCF) is a key financial metric that provides crucial insights into a company's financial health. It signifies the cash generated or used by a firm's core business operations, excluding external financing and investing activities. A positive OCF indicates the ability to cover day-to-day operational expenses and meet short-term obligations. This metric is a snapshot of a company's liquidity, illustrating its capacity to sustain and grow. In essence, OCF offers a real-time assessment of a company's cash-generating capabilities, serving as a vital indicator of financial robustness and operational efficiency.

This indicates the cash generated by the company's core business activities. If a company consistently generates more cash than it uses, it's in a good position to grow.

Analyzing operating cash flow can reveal a wealth of information about a company's financial health and its core business operations.

Assessment of investing activities can help to get insights of various investments made like purchase of fixed assets, construction of capital work in progress, dividend income from subsidiaries and interest income from fixed deposits. It reports the company's vision of expansion & growth. Retaining excess cash flow explain effective management of funds for long-term investments. On the other hand, deficiency means additional funds invested from company's own pocket.

Cash flow, when done efficiently, shows exactly how much money the company has, which is why it is such an important practice for analyzing a business. This way, the manager will be able to determine how the company's financial health is going and, then, make the best decisions for the business.

This provides an outlook on how much the company is investing in long-term assets like plant, property, and equipment. Cash used for investments can indicate growth or maintaining operations.

Financing activities is related to company's management in debt, borrowed funds, capital structure, dividend payment to its shareholders, payment of finance cost etc. Positive financing cash flows means company's optimization in using the borrowed funds and negative results is mounting of external debts and affects debt-equity ratio.

This section reveals the company's debt, loans, dividends paid, and money received from the stock issuance. It tells you how the company is raising funds and rewarding shareholders.

When it comes to the statement of cash flow, you look at each aspect critically. The operating activity tells how good management is able to generate income and spend the income on revenue expenditures. The investing activity gives an overview of transactions relating to capital expenditure or capital asset made by management. Finally, the financing activity shows where management got the capital from to do the business. whether the money is from from equity or debt.

The cash flow statement Analysis offers insights for informed decision-making: 1. Focus on Comparability: Analyze trends over time for a comprehensive view of the business's financial health. 2. Cash Cycle Context: Understand the cash cycle to pinpoint potential liquidity challenges and assess cash utilization efficiency. 3. Benchmarking Precision: analysis by benchmarking against KPIs, strategic targets, industry standards, and relevant competitors using ratios for a clearer perspective. 4. Holistic Comparison: Extend benchmarking to other business units for a holistic view, fostering collaboration and strategic alignment. 5. Incorporate disclosures and supplementary documents for enhanced transparency, catering to diverse stakeholders.

In addition to above, we can also look at the proportion of cash flow between Operating, Investing and Financing Activities. - If the proportion of cash outflow is consistently high in Operating Activities, it could mean that the business requires large Working Capital to fund its operations. This might lead to limited cash at hand for any growth or investment opportunities and the businesses will need to consistently raise finance. - If the proportion of cash outflow is high in Investing Activities, it would also mean business is diversifying its portfolio and its earning potential - If the proportion of cash outflow is consistently high in Financing Activities, business is spending high amounts to repay its debts or stakeholders