Finance: The Cash-flow Statement

Time for some finance again. Managing means and money are a vital skill in a capitalist society. I first wrote about TR = TE because that is how I think. Then the income statement followed which basically boils down to revenues minus expenses. Now it is time to mention cash, as in the cash-flow statement. The word already says it: cash-flow is the in and outflow of cash. More importantly cash connects pretty much everything.

Cash is the money, financial capital or the liquidities you have in coin, note or assets you can liquidate (sell off). You either have cash or you do not. Not having sufficient cash makes it difficult to pay for short-term goods and services. Not having cash at all can stop you from building financial reserves for tough times. Yes I am writing about saving and reducing expenses. Profits are nice and people who owe you money will pay but not having the money can still shut down one or all business activities.

Cash-Flow Statement

Cash-flow results from three activities:

Operating activities – production and sales.

Investing activities – investments and acquisitions.

Finance activities – managing equity and loans.

This financial statement can be comprehensive and full of details.

The formula in short:

Received sales earnings – paid operating expenses = net result X


Received investment earnings – paid investment expenses = net result Y


Received finance earnings – paid finance expenses = net result Z


Combined net result: X + Y + Z = positive or negative

Then subtract taxes and you know what you have.

Many financial experts and investors prioritise R.O.I. and cash-flow to assess whether a business is worth their attention and time. You want to make money and be certain you will be paid back on your investment. No matter how big or small your stake or share amount, positive cash-flow enables retained earnings after taxes and more money back than you put in.

There are several ways to make and calculate the cash-flow statements. Looking into those several ways slowed me down in writing this post. This statement can be simple for a household budget but also enormous for a corporation.

In finance it is the one thing that makes everybody equal. Cash matters to the low and high income people. Rich or poor, cash enables you to buy goods and services.