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Quickbooks – what does the cash flow mean?

Being a successful small business owner means being aware of where your cash flow is going. A cash flow statement provides you with this information in a financial report. It measures the cash generated or used by your company during a certain period of time.

How does a Cash Flow Statement work?

A cash flow statement will identify your company’s cash sources and uses for the period in three categories: cash flow from operating activities, investing activities, and financing activities.

Cash Flow from Operating Activities

The most important of the flow categories in a cash flow statement is cash that comes from operating activities. This is because it is the primary focus of business operations. The cash flow from operations has to be positive to make the business worth the investment for the business owner. It is also the first part of a cash flow statement.

The Formula

Net Income + Non-cash Expenses + Changes in Working Capital = Cash Flows from Operating Activities

Influencing Cash Flow

Working capital is a component of cash flow from operations. Thus, it’s important to note that companies can influence cash flow by preserving their cash, accelerating the receipt of cash, and putting off buying inventory, which would result in the preservation of cash.

Cash Flow from Investing Activities

The second part of a cash flow statement is the cash flow that comes from investing activities. It shows the cash flow from investing activities, which can include the purchase or sale of long-term assets. The cash flow is categorized as an investing activity since it uses cash for investing in the business.

The Formula

Purchase/Sale of Long-Term Assets + Purchase/Sale of Other Businesses + Purchase/Sale of Marketable Activites = Cash Flow from Investing Activities

Cash Flow from Financing Activities

The third part of a cash flow statement is the cash flow that comes out of financing activities. This is the net amount of funding a company generates in a given time period which is then used to finance its business. The debt or equity that is raised by companies that require capital will be reflected in this section of the cash flow statement.

The Formula

Issue/Repurchase of Equity + Issue/Repurchase Debt + Dividend Payments and Other Items = Cash Flow from Financing Activites

Why do Cash Flow Statements matter?

A loss of money can seriously impact the livelihood of a business. This is why many business owners value cash flow statements. Ultimately, cash flow helps companies to expand, innovate, buy back stock, pay dividends, or reduce debt. The higher the revenue and the lower the overhead, the better a company’s net income. The cash flow statement helps businesses run in a positive cash flow state to reach financial success.

Work with PDR CPAs

At PDR CPAs + Advisors our team of Quickbooks ProAdvisors are your support team for all your Quickbooks needs. If you are interested in a prosperous future from a personal and/or business standpoint, reach out to our team of dedicated specialists. When considering accounting, audits, tax or business consulting, one call can make all the difference. Click here to get started – we look forward to working with you!

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