Welcome to our next monthly installment of financial insights! This month we’ll explore the Cash Flow Statement. It can sometimes feel like a forgotten statement – yet it is a very important tool for businesses.
Cash Flow Statement: What is it? What can it help me with?
The purpose of a Cash Flow Statement is to provide a detailed overview of the cash inflows and outflows over a specific period. This statement has many benefits – please note a few which follow:
- Insight into Financial Health: It shows the actual cash available, helping assess the liquidity and solvency
- Basis for Decision Making: Management uses this statement to make informed decisions about budgeting, investing, and financing
- Performance Evaluation: It highlights the effectiveness in generating cash
- Investor Confidence: Provides information on cash position, which is essential for investment decisions
- Strategic Planning: Helps in forecasting future cash flows and planning for potential shortfalls or surpluses
- Compliance and Transparency: Meets legal requirements and offers a transparent view of cash dealings
Overall, the cash flow statement is a crucial tool for internal management and also external investors, creditors, and regulators to evaluate the financial stance and operational efficiency of a business. Businesses can help their cash flow by keeping on top of their debt, and ensuring it’s easy for customers to pay.
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