The cash flow statement is useful in answering these type of questions as it provides insight into the changes in cash for the period.
The cash flow statement is however limited in that it isn't very detailed. It doesn't provide you specific answers to these questions, but it does point you in the right direction. From there you have to dig into the details to find the specifics.
For example say that you have a higher than normal cash balance. You look at the cash flow statement and you see that there was an influx of cash during the period from your accounts receivable. What this means is that you had a significant decrease in your accounts receivable balance from the prior period. What this would indicate is that you collected more cash than usual from your accounts receivable. However, to know why this happened you would need to look at what customer or customers paid and if there were any circumstances that lead to this.
Like a said before the cash flow statement is useful at illustrating where the change happened and pointing you in the right direction, but it is never going to provide specific answers at the detail level. That is where you must to roll up your sleeves and dig into the details.
The main takeaway is that researching changes in cash can be more efficient with the help of a cash flow statement as it helps you to pinpoint the source of significant cash inflows or outflows.
My next post will dive deeper into the cash flow statement. We will explore how to analyze a cash flow statement to receive useful information that will aid in making important business decisions to maximize cash flow.
# 1: The Cash Flow Statement
This is the first of a series of posts I am going to be making regarding maximizing a business's cash flows.
The first item I am going to discuss is the cash flow statement. The cash flow statement illustrates the change in cash for the period covered. It outlines what the inflows and outflows of cash were during the period.
Have you ever asked yourself any of the following questions?
- Why is my cash balance so low or so high this month?
- Where did all the cash go or where did all this cash come from?