What is a cash flow statement?

The cash flow statement, also called a cash flow report, determines changes in the inventory of liquid funds and is among the most important tools for company management.

Determination of Cash Flow

Since expenses and revenues may not necessarily be tied to cash inflows or outflows, cash flows cannot be directly read from the income statement but must be calculated based on the balance sheet and the income statement. There are both a direct and an indirect method for determining cash flow. With the direct method, liquidity-effective revenues are reduced by liquidity-effective expenses, while with the indirect method, non-liquidity effective expenses (e.g., depreciation) are added to the net profit and non-liquidity effective revenues (e.g., increase in debtors) are deducted. Both methods yield the same result, but the indirect method is most commonly used.

Structure of the Cash Flow Statement

In indirect determination, the cash flow statement separately presents changes in liquid funds from operating activities, investing activities, and financing activities. The cash flow from operating activities, also known as operating cash flow, represents the self-financing capacity of a company, that is, the ability to generate liquidity from ordinary business operations. A positive operating cash flow enables the company to make new investments or pay off debt from its operating activities. Cash flow from investing activities results from the comparison of investments and divestments. In the case of cash flow from financing activities, financings are compared with defunding, taking into account those movements that affect either equity or long-term external capital.

To reliably assess liquidity, we generally recommend every company to prepare a cash flow statement. The obligation to create a cash flow statement applies according to Art. 961 of the OR solely to companies that are legally obligated to a regular audit.

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