Cash flow

published 28 May 2018

As well as publishing yearly profit and loss accounts, companies also have to produce a cash-flow statement. Cash flow is simply the movement of money in and out of a business and the statement lets you look at this in detail. It shows everything from how much cash the company generates from its year's trading to how much it has paid out to shareholders in cash dividends and how much has been set aside to pay off debts. The final line shows the total increase or decrease over the year in how much cash the company holds.

A cash-flow statement is useful for investors. It shows you whether the amount of cash generated in certain areas differs from the profit and loss account and lets you see why this is happening. More importantly, you can use it to work out whether or not the company is generating enough cash to cover its running costs and, if it is, you can see if it is expanding too quickly and spending too much of its money on acquisitions or whether it is managing its growth with prudence.

See Tim Bennett's video tutorial: What is a cash-flow statement?