Cash flow money goes introduces cash flow statements. Also called ‘sources and uses of funds’ the cash flow statement provides very useful financial information. It tracks the cash received as well as the cash used or spent by the company. Knowing the comings and going of cash helps investors understand the company’s financial pulse.
Simple Numbers Track Money, lesson 5
The cash flow money goes lesson explains how investors use cash flow information. This is lesson 4 of the Simply Numbers course that explains company financial reports. Links at the end guide you to related lessons if you want to learn more.
Here’s looking at you – CASH!
Cash flow money goes – where did it all go!
This post continues the White Top Investors course, Simply Numbers. Today in Lesson 4 we discuss cash flow.
Links to all parts of the White Top Investors course, Simply Numbers are at the end of this post.
Cash flow statement gives us vital information. Cash flow or “sources and uses of funds” or some variation of that name gets applied to the report that tells us the source or where the cash came from and where it gets used. Like the income statement it covers the term of the reporting period up to the date of the report. Typically that is for a quarter (3 months), year to date or in the case of the annual report, 12 months. This is in contrast to the balance sheet which always reports the numbers as of that one date.
Companies need cash to pay the bills just like we do. The cash flow report is very useful because cash flow makes the world and our company go around. It is like the corporate or business blood flow needed to keep the business heart beating.
We want to see that the company generates cash. This report uses and sorts both balance sheet and income statement information. The cash flow report tells us if we have an increase or decrease in cash during the reporting period. The business activities that affect cash flow and the amounts of cash, divide into three groups which help us understand the business picture.
Cash Flow Activity
1. operations
2. investing
3. financing
This report lists these three groups of business activity beginning with operations. That tells us if business operations produced or used cash.
Next investing activity tells us if management invested cash or took cash out of the business.
Finally financing sources, equity or loans get reported. The company can increase or decrease financing by accepting or re-paying cash from investors or from borrowers. Then we see how and where management invested cash in the business and what financing activity was undertaken during the reporting period.
We can see if operations consume or produce cash. We also see if investing meets the operating needs and the source or disposition of any cash.
Three key financial reports
The balance sheet, income statement and cash flow statements form a powerful information team. And like any other team they have to be used together to get the best reporting result. Having a basic understanding of those reports gives you a way to look at and understand the financial matters of a company.
Financial notes are rich sources of valuable information
Notes attached to the financial statements are a very rich source of information, clarification and explanation. Also the management discussion and analysis reports many details about the business and current period. When looking to invest these are very valuable parts of the quarterly and annual reports are well worth your attention.
Management discussion and analysis is more than spin
The Management discussion and analysis is a vital source of information about a company. This report is management’s discussion of the numbers contained in the financial statements. Read it. Do keep in mind, this is your management reporting to you. Of course it is their point of view. But this management information is much more than spin.
The discussion and analysis reports are full of information and insight. Understanding that information is a very helpful aid to understanding the company.
Make use of all parts together to gather excellent and useful information to use when making investment decisions.
This completes the White Top View Series, Basic Numbers as an introductory overview to understanding financial statements.
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Simple Numbers Track Money, lessons:
Introduction to Simply Numbers Tracking The Money Lesson 1
Financial statement numbers exposed Lesson 2
Balance sheet numbers exposed Lesson 3
Income statement bottom lines Lesson 4
Cash flow money goes Lesson 5
Analyzing, analysts and investing numbers Lesson 6
Next course suggestion:
Banks, Credit, Debt & Wealth
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