The cash flow statement expresses the increase or decrease of an organization's cash (including bank deposits) in a fixed period (usually monthly or quarterly). The appearance of cash flow statement mainly reflects the influence of each item in the balance sheet on cash flow, which is divided into three categories according to the purpose: operation, investment and financing.
The cash flow statement can be used to analyze whether an organization has enough cash to meet its expenses in the short term. Announcement No.7 of International Financial Reporting Standards stipulates the preparation of cash flow statement.
As an analytical tool, the main function of cash flow statement is to determine the short-term viability of the company, especially the ability to pay bills. It is a report that reflects the dynamic situation of cash inflow and cash outflow of a company in a certain period of time. Its composition is consistent with the balance sheet and income statement.
Functions of cash flow statement:
The cash flow statement provides evidence of whether a company is operating healthily. If the cash flow generated by a company's operating activities cannot pay dividends and maintain the productivity of its equity, so it has to borrow money to meet these needs, then this gives a warning that the company cannot maintain its normal expenses for a long time.
The cash flow statement reveals the internal development problems of the company by showing the shortage of cash flow generated in the operation and having to borrow money to pay unsustainable dividend levels.
Through the cash flow statement, we can generally reflect the influence of business activities, investment activities and financing activities on the cash inflow and outflow of enterprises, and provide a better basis for evaluating the realized profits, financial status and financial management of enterprises than the traditional income statement.