What is cash flow?
The cash flow statement provides information on the change in the liquidity situation of a company in a given period. This not only examines whether there is more or less liquidity at the end of the year than at the beginning of the year, but also in which areas (operating activities, investing activities or financing activities) and why there has been an increase or decrease. Cash flow can be either positive or negative.
Note that the cash flow only provides information about the change in cash and cash equivalents in the past year. However, it makes no statement as to whether or not the company has made a profit.
Why is cash flow important to you?
A: Cash flow shows how liquidity changes over a given period. Thus, the cash flow can be used to keep an eye on the liquidity situation and to avoid possible liquidity bottlenecks. By looking at the cash flow, it is possible to see to what extent a company generates financial resources from its own resources and how strongly it can finance itself from within.
Definitions of terms
CF Gross Gross cash flow is the amount resulting from net sales less expenses, interest and taxes.
CF from operating activities The operating cash flow indicates whether the company has generated free liquid funds from its operating activities. It therefore indicates whether your company is able to finance itself. Taking into account decreases and increases in receivables, inventories and current liabilities, the gross cash flow becomes the cash flow from operating activities.
(-) Invest / (+) Disinvest. Financial AV The cash flow resulting from investments or disinvestments in relation to financial assets should be entered here. Examples include the purchase or sale of shares or bonds.
CF Investment activity The cash flow from investing activities shows how liquidity changes due to investments (decrease in liquidity) and disinvestments (increase in liquidity). For example, if a new machine is purchased, liquidity decreases, resulting in a negative amount in the cash flow statement.
Free cash flow Free cash flow describes the liquid funds that are available for dividends or for the repayment of debt. It is calculated from the operating cash flow less the cash flow from investment capability.Free cash flow is used to assess a company’s ability to repay its loans.
(+) Increase / (-) decrease hyp. / loans Payment flows resulting from the taking out or repayment of a mortgage or loan are entered here.
(+) Increase / (-) decrease loans Payment flows resulting from the taking out or repayment of a loan are entered here.
(+) Increase / (-) decrease in (basic) capital If there has been an increase or decrease in the share capital, this will be noted here.
(+) Increase / (-) decrease in share premium Any increase or decrease in the premium is entered under this item.
(+) Increase / (-) decrease in current account The change in the current account is recorded here.
CF from financing activities The cash flow from financing activities results from the total of increases and decreases in mortgages, loans, share capital, share premium, dividends and current account. For example, if a new loan is taken out, more liquidity is available, which leads to a positive amount in the cash flow statement. For example, if part of a mortgage is repaid, less liquidity is available, which leads to a negative contribution in the cash flow statement.
