Cash Flow Analysis Techniques and Tips

Understanding cash flow is key to business success

Two of the financial statements that business firms must prepare are the Income Statement and Statement of Cash Flows. The income statement shows a firm's profit or net income. The statement of cash flows shows the firm's cash position.

Why is cash flow key to success? 

Cash flow is defined as the difference in cash available to the business at the beginning of an accounting period and at the end of the period. Cash is loan proceeds, investments, and the sale of assets, and goes out to pay for operating expenses, direct expenses, principal debt service, and the purchase of assets such as equipment. When you operate a small business, cash is king. You can be profitable, but cash poor. If that is your position, you are in danger of losing your business.

These articles show you how to do cash flow analysis in order to increase your cash flow. They also introduce you to cash budgets and Statements of Cash Flows and show you how to analyze them. You need to know all of this to properly operate your business.

How to do a Cash Flow Analysis

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Cash is the gasoline that makes your business run. A cash flow analysis is a method for checking up on your firm’s financial health. It is the study of the movement of cash through your business, called a cash budget, to determine patterns of how you take in and pay out money.  More

The Difference Between a Cash Budget and a Statement of Cash Flows

Keeping track of cash flow is essential for the survival of your small business. However, accountants sometimes speak about the Statement of Cash Flows and the Cash Budget. What do they mean, exactly, and how are they different?  More

The First Step in Analyzing a Statement of Cash Flows

A business owner must look at the last two years of the firm's balance sheets and compare the differences between the two in order to develop the Statement of Cash Flows. With sample information from an income statement and the information from these comparative balance sheets, you can develop your Statement of Cash Flows. More

Preparing and Analyzing a Statement of Cash Flows

Analyzing a Statement of Cash Flows involves looking at the sources and uses of funds from the comparative balance sheets. Here is a line-by-line cash flow analysis of a sample Statement of Cash Flows. More

Calculate Your Company's Free Cash Flow

The free cash flow calculation is one of the most important results that you, as a small business owner, can take away from the analysis of your company's Statement of Cash Flows.

Simply put, free cash flow is the cash that a company has left after it pays for any capital expenditures it makes, like new plant or equipment. 

Free cash flow is the gold standard for your company's financial health. Add an analysis of your company's free cash flow to your cash flow analysis to make it stronger. More

3 Free Cash Flow Calculations

Free cash flow is how much money your business has left over to use for other purposes after it has paid for capital expenditures, including buildings and equipment, and other expenses needed to sustain its ongoing operation.

There are three ways to calculate free cash flow, all leading to the same answer. Here are examples of all three ways. More

Calculate Cash Flow Ratios for Your Company

There are several financial ratios that help the business owner to focus on cash flow.

Calculating the cash flow ratios for your company can tell you about its liquidity, solvency, and viability. Add these calculations to your cash flow analysis to strengthen it. More