Analysis of Cash Flow Statement

Analysis of Cash Flow Statement


The following are the definition of financial statements in accounting. They include balance sheet, financial and cash flow statement.

Balance Sheet

Balance sheet refers to a financial statement summary that is used to show the financial position of a company/business by indicating the asset(s), liabilities and capital/ equity at a particular period. In business, the balance sheet is used to show the net worth. The assets are grouped on one side while the liabilities and capital on the other side. The assets may include inventory, premises, equipment, cash, account receivable and some intangible assets among others.  Generally, the balance sheet shows a snapshot of what a business owns versus what it owes (Investopedia, 2018). The following Equation gives the connection between Asset, Liability, and Equity: Liabilities + Equity = Assets.

Income Statement

Income statements in financial statements is a statement that shows the company/business performances by either showing profit or loss for a certain period. Profit and loss arising as a result of deducting total expenses and revenues from operating and non-operating activities (Investopedia, 2018). The income statements items include business expenses, revenues, costs, selling expenses, and gross profit. Other includes tax paid and net profit which is arranged in a logical method (Ward, 2018).

Statement of Cash Flow

This type of financial report shows the company money spending habits and sources of cash as well. Cash flow also used to show cash inflow and outflow for ongoing operation and external venture sources respectively. Cash flow is divided into three distinctive parts namely; investing, operation and financing. In other words, cash flow statements indicate how much the business receives and pays out. Mostly, a cash flow statement reflects the previous period of accounting (Hofstrand & Leibold, 2018).

The Relationship between Financial Statements

All three financial statements namely the balance sheet, profit and loss account, and the cash flow are associated in one way or the other. The profit and loss account describes the assets and liabilities used during a given period. The statement of cash flow explains cash getting in and cash getting out, and automatically reveals the cash at hand in the business, which is an item in the balance sheet. The three statements provide a comprehensive picture of business finance standing.

It should also note that the net income in the income statement changes the equity in the balance sheet. More so, the net income appears in the statements of cash flows in the operating activities. Most of the items in the balance are forwarded into the cash flow statement such that an increase in the loan will appear liabilities in the balance sheet and also reflect in the statement of cash flow. The final cash at hand in the balance sheet also reflects in financing activities in the cash flow statement (Bragg, 2018).

Importance of statement of cash flow to the investors

The primary meaning of cash flow statement depends on the user. Furthermore, the cash-flow statement is important for it focuses exclusively on inflow and outflow cash. Also, a cash flow statement tells more about how the business money was spent. The cash flow statement shows the report of a company more clearly than the income statement does. Therefore, in the investors’ viewpoint, cash flow is an important financial statement in that they analyze the financial figures. These figures are used in great interest in the cash flow statement (Bragg, 2018). Finally, the statement of cash flow ensures a suitable investment and create investment opportunities from cash at hand available.

Operating Activities – Cash Flow

Operating activities is used to show the source of business cash. Mostly, it is considered to be crucial and vital for providing cash flow statement information. In ABC Company, the difference between cash receipts from customers and the sum of all cash paid gives the positive cash flow figure. This helps Ms. Logan as an investor, is interested in the company for she can determine where the company is getting cash from (Investopedia, 2018). Investors need to see positive income due to real wage from operating activities, which are repeating, not because the organization is auctioning off the entirety of its benefits, which results in gains.

Investing Activities – Cash Flow

Investing activities is vital because it shows the state of growth and standing capital in a company. The inflows in ABC Company are sales of property and equipment, loans collection and sale of investment securities. On the other hand, the outflows include purchases of property and equipment, making loans to other entities and purchase of investment securities. The contrast between cash inflows and cash outflows gives the negative net income flow figure. The negative figure shows that the company is re-investing consistently and it keeps the assets in good condition without wear and tear.

Cash Flow form Financial Section

Cash flow from the financial section indicates cash movement between the company and third-party creditors. Financing Activities in ABC Company shows that the cash received is less than the cash paid. Hence, the ending figure indicates a negative number as the net cash flow. The net cash flow is a negative number meaning that the company is having a debt (Investopedia, 2018). The figure also means that the company is paying a debt or the dividends and stock repurchases is being paid. Ms. Logan as an investor will want to see such a figure for she can get crucial information regarding the company cash flow.

Summary Analysis

The ABC Company is having positive net cash flow from operations indicates the source of company cash. In addition, the cash flow from investing activities is a negative figure. This number shows the ability and potential of the company to re-invest. Finally, the financial activities cash flow is reflected that the ABC Company can re-stock, pay debts as well as making dividends payments to shareholders.

In conclusion, I recommend Ms. Logan should hold and sell all her investment in ABC Company for it has future growth.


Banks and other money-related delegates work in capital markets that play out the important elements of organizing the activities of savers and borrowers and encouraging the investment that is basic to a developing business sector economy. Furthermore, the lending capacity of commercial banks is the methods by which the cash supply in our economy changes because of the high points and low points of the business cycle.

This exercise centers on the task of the commercial managing an accounting framework, and the mechanics of cash creation through the loaning procedure. It likewise takes a gander at the task of capital markets where premium (the cost of cash), makes motivating forces that influence the levels of sparing, loaning, and acquiring exercises in the economy. A comprehension of how banks make money is likewise an important theme, which centers on financial strategy and the Federal Reserve System.

The Monetary Policy Operations and Analysis segment manage the usage of monetary arrangement as it identifies with saving prerequisites, the installment of interest, the Discount Window, and the Term Deposit Facility. The segment adds to financial arrangement configuration, utilizing ability in the operational parts of monetary approach instruments, incorporating mastery in the Federal Reserve’s counterparties, the microstructure of business sectors in which these counterparties are dynamic, and the Federal Reserve’s job in the installment framework. The area embraces current analysis on the intermediation exercises of the Federal Reserve’s counterparties, especially banks and cash assets, as it identifies with monetary arrangement structure and execution, and also more broad issues of market work (Corporate Finance Institute, 2018).

To see how the Federal Reserve’s policy on loan fees influences you and your business, you should initially acknowledge what the Fed is attempting to do. The objectives of Fed financial policy are sustained possible development in the U.S. economy, strengthen high business and keep costs stable. The Fed achieves these objectives by dealing with the measure of cash available for use and in records at business banks. One of the Fed’s instruments for overseeing money is to change loan fees. High-loan costs profit more costly and get the measure of cash available for use and in banks. Low rates profit more affordable and increment the cash supply.

Staff thinks about make prepared utilization of the segment’s database containing data on the liabilities of thousands of banks and thrifts, and also information gathered by the Federal Reserve on safe resources, store estimating conduct, and rebate window are acquiring and save adjusts. The segment has a continuous operational obligation to gather information to be distributed on the monetary and hold totals and additionally arrangement rates, rebate window acquiring, and the Quarterly Transparency Report.