25 Need-To-Know Management Ratios

10

The cash flow statement

This chapter reviews:

• Cash versus profit
• The cash flow statement

For purposes of completeness we have included a chapter on the cash flow statement. This statement is used more externally than internally to analyse a business.

The cash flow statement completes a company’s set of published accounts. Its purpose is to track the flow of funds through the company. It identifies where cash has gone to and where it has come from and it is a very powerful tool for explaining movements in the various liquidity ratios.

Cash versus profit

The rules relating to cash flow are very simple. Every time a company pays out cash, writes a cheque or makes a bank transfer, a cash outflow occurs. When cash, a cheque or a bank transfer ...