Cash Flow Statement: What It Is & How to Read It

Staff Writer

November 14, 2023

What’s in the article?

A cash flow statement is an important financial document that outlines all the cash transactions related to business operations over a specific period of time, such as investments, loans, customer payments, employee salary payments, and other expenses. In Singapore, this is a part of a company’s obligatory financial reporting, along with its balance sheet and profit and loss statement.

Why Are Cash Flow Statements Important?

The cash flow statement’s main importance is to ensure that companies are in compliance with the government’s requirements and properly disclose their financial statements in accordance with accounting and regulatory standards. It can also be used for tax planning as it helps the company to optimize its tax positions by understanding the patterns and nature of the cash flow.

A company’s management team also often refers to this statement for an overview of the cash inflows and outflows, especially when making big financial decisions. It also helps them find out whether or not the company is generating enough income, with a negative cash flow indicating greater outflow than inflow, as well as whether it needs to adopt a more suitable liquidity management strategy.

Aside from that, investors and creditors also use the cash flow statement to gauge the financial performance and stability of a company, which can ultimately affect some important decisions that may be made in the future.

What are the Different Categories of Cash Flow Statements?

In Singapore, cash flow statements can be divided into the following categories:

  • Cash Flow From Operating Activities: This section reports any cash inflow or outflow related to core business operations and activities. Some examples include customer payments, employee salary payments, accounts payable, depreciation, and operating expenses. The main purpose of this category is to provide insights into whether the company can generate enough income from its main business activities.
  • Cash Flow From Investing Activities: This section includes all cash flow related to any acquisition and disposal of assets like properties, plants, equipment, and investments. This category helps stakeholders and investors better understand how the company is investing in its future growth and managing its capital expenditures.
  • Cash Flow From Financing Activities: This section covers cash flow related to any financing activities that the company might have, such as issuance and repayment of debt, as well as transactions with the company’s owners like paid or received dividends. This category provides information on how the company is funding its operations and repaying its dues.

How to Read Cash Flow Statements?

You can easily read your company’s cash flow statement by following these steps:

  • Step 1: After understanding the key categories included in the cash flow statement, you can begin analyzing key items such as the following:
  • Net Cash Provided by Operating Activities
  • Net Cash Used from Investing Activities
  • Net Cash Provided from Financing Activities

As these figures refer to the net cash generated from these activities, a positive number will indicate cash generation, while negative numbers indicate cash loss. It’s worth noting that negative numbers are expected in the Net Cash Used from Investing Activities item as businesses often invest greatly in their future growth.

  • Step 2: Once you’ve looked at these items, you can then check the Net Change in Cash and Equivalents item to check for any assets that can be converted into cash. 
  • Step 3: You should also look at the Net Increase or Decrease in Cash—the sum of cash flows from all the items mentioned in the first step—as this will show the total cash that the company earned or lost during the specific reporting period.
  • Step 4: You can also check for any changes in working capital accounts, such as accounts receivable, accounts payable, and inventory, as these changes can affect cash flow.
  • Step 5: Compare these to other financial statements like income statements and balance sheets and look for consistencies between the different statements. You can also take the opportunity to see how changes in revenue, expenses, assets, and liabilities affect cash flow. Remember to not include non-cash items like depreciation and amortization as these are not considered in cash flow statements.

What’s the Difference Between Cash Flow and Profit?

! Cash Flow Profit
Definition Represents the inflows and outflows—or the generation or usage—of money from daily operational costs during a specific period. Represents the amount of money left after deducting all of the company’s expenses from its revenue.
Timing of Recognition Deals with the actual movement of cash and considers when cash is received or given to customers, suppliers, employees, and others. When revenue is earned or expenses are incurred regardless of when cash is received or paid.
Items Considered Focuses solely on cash transactions and cash available on hand. Includes non-cash items like depreciation and amortization that don’t necessarily involve actual cash transactions.
Activities Considered Details cash flow used from operating, investing, and financing activities to give a comprehensive overview of how cash is being used or generated across different areas. Does not consider cash used for investing or financing activities.

Manage Your Company Finances Easily with WealthBridge!

WealthBridge’s team of professionals is equipped with years of experience handling the financial and accounting needs of companies across various industries and sectors. Let WealthBridge handle your financial statements and filings so that you can focus on growing your business for the better!

What's popular