Senior 5 financial statements: Cash flow statement

In this statement the company will register a break down of the main cash outflows and inflows.

Cash outflows

All of the expenditures in raw materials or finished goods for the period could have been paid in cash (outflow) or just increasing the credit with the supplier, this idea is linked with the costs of goods sold and with the overheads.

All of the cash payments during the period to employees (wages, salaries), shareholders (dividends), government (taxes), financial creditors (interests) will be registered as a cash outflow. At the same time during the period you could increase the company´s debt with any of the previous stakeholders by just delaying the cash payment.

All purchased fixed assets in cash will be registered in this statement. Remember that part of the value or the total value could be financed with the seller of that asset or with a financial institution in that case that value will increase the liabilities of the company and is no a cash outflow.

All debt cancelled during the period will be a cash outflow.

Cash inflow

Sales in cash

Debtors (customers that by to the company with credit) pay their debt

Issuing new shares

New debt made cash

Selling fixed assets

Cash flow cycle

A typical cash flow cycle explains how the cash gets in the company by the sales of finished products to the customers, then how that cash is used to pay for raw materials, employees, the government. The key idea here is to understand that due dates of payment to any of the liabilities of the company not necessarily will match a cash stocked or a cash inflow since the company just sold a product. Therefore usually in order to pay the company will have to find quickly a financial source like an overdraft with the bank. And if at some point in time the company has a lot of cash that will be useless in the short run, the wise decision is to invest this money until the company will need it again or pre cancel any of the liabilities if the company could deal with a discount.

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