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How to write a cash flow statement

how to write a cash flow statement

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Analyze cash flows from operations. This is the first section in the cash flow statement. Investors want a company that has positive cash flow from operations. If cash flows from operations is positive, explain which line items contributed to the increase. If it is negative, talk about those line items which contributed to the decrease. Be sure to include a discussion about working capital, which is calculated by subtracting current liabilities from current assets. Working capital is used to discuss short-term funding needs for operations.

Identify cash flows from investing. Cash flows from investing is usually negative due to the purchase of assets. Assets purchased in this section are considered depreciable or capital assets, which are tax deductible unless they are financial instruments such as marketable securities. Discuss the amount and nature of purchases if the value is negative. If the number is positive, discuss

why the company felt the need to dispose of assets. If the company is strapped for cash, it may have to sell assets in order to raise capital.

Write about cash flows from financing. Financing activities include the issuance of bonds or stocks. It also includes the payment of interest and dividends on those stocks. If cash flows from financing is positive, discuss how that capital was raised -- through debt or equity issuance. Talk about what the capital will be used for and if the company anticipates a need for more.

Write a conclusion about the company's sources and uses of cash. Most investors want a company that has positive cash flows from operations rather than investing or financing. If this is not the case, investors or readers will want to know why. Provide a recommendation about the health of the company's cash flow situation based on your analysis.

Category: Forex

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