Understanding
Business Plan Cash Flow Statements
The cash flow
statement is organized into three parts. The first, cash from
operating activities, can alert one to future declines in sales and
earnings by signaling when a company is having trouble selling inventory
or collecting cash it is owed, among other things. The second,
cash from investing activities, gives the reader lots of information
from how much the company earned in the stock market to whether it's
cutting back on capital expenditures. The third part, cash from
financing activities, indicates whether a company receives cash
infusions from outsiders, such as banks or shareholders.
Ideally, a company's operations should generate excess cash, while its
investing and financing sections show negative cash flows because
self-sustaining businesses can pay down debt and finance new investments
internally. To understand how the cash flow statement highlights earnings quality,
one must understand the accounting rules that govern the cash flow and
income statements. Generally, companies record the revenue that
drives earnings when customers receive merchandise, but before they
pay. The cash flow statement reflects how much cash is actually
collected. A bellwether for earnings quality is the ratio of net income on the
income statement to "cash from operating activities" on the
cash flow statement - generally, the closer the ratio of those two
numbers is to one, the higher is the quality of reported earnings. The Business Plan Store will prepare detailed financial
statements for your business
plan that express your vision in terms of dollars and units of time, and in a format
that is easily understandable to all people in the lending industries. (Example
Cash Flow Statements) Links
to Understanding:
Financial
Statements | Income Statements | Balance
Sheets |
