How do the cash flow statement flows?

After understanding your financial condition and performance by reading your balance sheet and income statement, you may now have the picture of how your business is running. However, seeing a positive equity in your balance sheet or a profit in your income statement doesn’t make your financial understanding complete. The cash flow statement is one of the five main financial statements of a company. The cash flow statement tells us how sustainable a company is in a short run. If cash is increasing and cash flow generated by operations is positive, then we can tell that a company is healthy in the short-term. Increasing or stable cash balances means that a company is capable of meeting its cash needs, and remain solvent. This information cannot always be seen in the balance sheet or income statement of a company. For example a company may be generating profit, but still it cannot meet or pay its short –term payables or obligations. Read more

Understanding the Balance Sheet

A balance sheet is a formal statement showing the financial position of an entity as of a particular date. The balance sheet is the only financial statement that reports as of a particular date compare to income statement, statement of changes in equity, and cash flows which all reports for a particular period of time. The balance sheet presents the three elements of financial position, namely assets, liabilities and equity.

Assets are defined as resources controlled by the entity as a result of past transactions and events and from which future economic benefits are expected to flow to the company. In layman’s language these are the properties owned by the entity. Read more