How do I calculate the cash flow in the annual financial statement?
April 26, 2022 | 50,00 EUR | answered by Alice Heck
Dear Tax Advisor,
I have a question regarding cash flow in the annual financial statements and hope that you can assist me. I operate a medium-sized company and am currently facing the challenge of calculating the cash flow for my annual financial statements. Unfortunately, I lack the necessary expertise and am unsure of how to proceed.
In terms of the current situation: My company had various revenues and expenses in the past fiscal year, which I now need to consider in my annual financial statements. I would like to determine the cash flow in order to get an overview of the liquidity-related inflows and outflows.
At present, I have access to the accounting records, but I am not sure which items should be included in the cash flow calculation and how to interpret them correctly. Additionally, I am having difficulties distinguishing between operating cash flow, investing cash flow, and financing cash flow.
My concerns are that without a correct calculation of the cash flow, I may not be able to make informed decisions for the future and could potentially overlook liquidity issues.
Therefore, my question to you is: Can you please explain to me how to correctly calculate the cash flow in the annual financial statements and what steps I need to consider? Are there specific ratios or methods that can assist me in this process? I would greatly appreciate your assistance.
Sincerely,
Rolf Freudenberger
Dear Mr. Freudenberger,
Thank you for your question regarding cash flow in the financial statements. It is understandable that calculating cash flow is an important task to assess the liquidity of your company and make informed decisions for the future. I am happy to explain to you how to proceed.
Firstly, it is important to understand that cash flow represents the change in a company's liquid assets over a specific period of time. It shows how much money actually flows into the company and how much flows out. Cash flow consists of three components: operating cash flow, investing cash flow, and financing cash flow.
Operating cash flow refers to the income and expenses related to the company's core business operations. This includes revenue, material costs, labor costs, and other operational expenses. To calculate operating cash flow, subtract operational expenses from income.
Investing cash flow includes all cash inflows and outflows related to investments in the company's fixed assets. This includes the purchase or sale of machinery, buildings, or other long-term assets. To calculate investing cash flow, subtract investment outflows from inflows.
Financing cash flow refers to all cash inflows and outflows related to the financing of the company. This includes loans, loan repayments, or capital contributions from shareholders. To calculate financing cash flow, subtract financing outflows from inflows.
To determine total cash flow, simply add the operating, investing, and financing cash flows. This will give you an overview of your company's actual liquidity situation.
There are also various ratios that can help you analyze cash flow, such as the cash flow coverage ratio, cash flow return on investment (CFROI), or free cash flow. These ratios provide additional information about your company's liquidity and can assist you in financial planning.
I hope this information helps you and that you can now accurately calculate your company's cash flow in the financial statements. If you have any further questions or need assistance, please feel free to contact me.
Sincerely,
Alice Heck, Tax Advisor.
