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Income statement, balance sheet and cash flow statement are the three most important financial statements a business must have. A cash flow statement example will represent how cash entered and left a business over a specific period. It’s different from an income statement as income statements record just income or expenses and not the cash that actually enters or leaves. We’ll see from a cash flow statement example that even with an increase in reported income, there may not be sufficient cash at hand. Say there is an asset whose depreciation is recorded as a recurring expense. Although the income statement will record expenses every month, the net cash in hand will be unaffected as the asset is already paid for. A cash flow statement example will focus on the money that is practically available instead of what has been spent in theory.
As any cash flow statement example will demonstrate, it’s important to have one before a cash flow analysis can be done. A statement of cash flow is a financial statement that reflects the net cash and cash equivalents that a business has at hand. Making profits is not enough if there isn’t enough cash to pay bills, employees and suppliers. That creates an imbalance and can shut a business down. Let’s look at the importance of a cash flow statement.
- A cash flow example from an operating activity shows that knowing the exact operating cash flow can help managers understand what they can afford and show the liquidity of their businesses.
- A cash flow example from an investing activity shows changes in cash inflows, outflows and the cash on hold, giving a clear accounting picture to measure performance.
- A cash flow example from a financing activity allows managers to predict cash flow in the future. Cash flow projections can help plan for the business’s future.
A cash flow statement is even required to apply for loans as it represents the up-to-date cash flow process. This helps banks decide if a business is worth investing in.
A cash flow statement example shows that it’s prepared after monitoring three major activities. They are:
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Cash Flow From Operating Activities
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Cash Flow From Investing Activities
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Cash Flow From Financing Activities
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Cash Flow From Operating Activities
Cash flow example from an operating activity shows that operating activities are recurring expenses or costs such as rents, salaries and maintenance. A cash flow example from an operating activity will be a representation of the difference between the amount spent on operating expenses and that received from the customers.
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Cash Flow From Investing Activities
We can see from any cash flow example from an investing activity that long-term investments or buying stocks, assets or properties are classified as investing activities.
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Cash Flow From Financing Activities
Cash flow example from a financing activity shows that equity, dividend and debt transactions are classified as financing activities.
The cash flow from these activities determines whether an organization was successful in collecting revenues that were booked under the income statement.
Cash Flow Statement Example: Colgate
Let’s look at cash statements of Colgate under different activities:
- Colgate’s cash flow example from an operating activity 2015
Here is a cash flow representation for operating activities:
Activities $ (in million)
Net income : 1548
Depreciation : 449
Termination benefits : 69
Venezuela : 34
measurement charges
Stock-based
compensation expense : 125
Sale of other business : -187
Charge for Venezuela : 1084
accounting change
Deferred income taxes : -51
Receivables : -75
Inventories : -13
Accounts payable : -67
Other non-current assets : 33
and liabilities
This cash flow example from an operating activity shows that Colgate had a net income of $1548 million and the net cash provided by operations was $2949 million.
- Colgate’s cash flow example from an investing activity 2015
Look at this table demonstrating a cash flow example from an investing activity:
Activities $ (in millions)
Core capital expenditures : -691
Sale of property & non-core : 9
product lines
Investment and security : -742
purchase
Sale of marketable securities : 599
& investments
Sale of South Pacific laundry : 221
detergent business
Payment for acquisitions : -13
Reduction in cash due to : -75
Venezuela accounting change
Other : 7
Here the cash flow example from an investing activity shows negative cash flow of 691 million in 2015.
- Colgate’s cash flow example from a financing activity 2015
Let’s look at the table below as a cash flow example from a financing activity:
Activities $ (in millions)
Payments on debts : -9181
Proceeds from insurance : 9602
of debts
Dividends paid : -1493
Treasury shares purchase : -1551
Exercising stock options : 347
benefits and excess tax
benefits
This cash flow example from a financing activity shows stable financial activity for Colgate in 2015. These examples tell us that to decide if a business is profitable or not, one has to understand their financial affairs by looking at all statements and the ratios.
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