How to Construct a Cash Flow Statement

Cash Flow statement is a financial statement of a company which takes into account only cash related transactions made during an accounting period. Preparing a cash flow statement will require proper assessment of the activities (cash) carried by the company in a particular year.


  • 1

    Determining the beginning balance

    The first process is to identify the company’s ending cash in the previous accounting year. This will now be the beginning balance of the current year. This value can found on the company’s balance sheet or simply look back at the previous cash flow statement to determine this figure.

    If you are analyzing the balance sheet, then cumulate all the cash and cash equivalents, generally referred to as Current Assets. In most cases however, the business will take into account depreciation, changes to accounts receivable or payables, amortization and other non-cash assets to determine the net opening cash for the period.

  • 2

    Determine operating Activities or Cash Flow from Operating Activities

    This refers to the cash made by the company from the daily operating activities, usually the sale of its product or service. To gauge the true value of the money raised from operations, one needs to remove the non-cash transactions such as accounts receivable and add the intangible expenses such as amortization and depreciation. The net value will be the Cash Flow from Operating Activities.

  • 3

    Determine Investing Activities or Cash Flow from Investing Activities

    Now determine the money the company has used on buying new investment such as machinery, stocks, equipment etc. To arrive at the value, we need to add all relevant purchases made during the year. The value will be negative as the company is paying cash to buy the necessary goods. However, in the balance sheet purchases such as equipment and machinery will be listed in the Assets column with the equivalent cash amount being deducted to offset the transaction.

  • 4

    Determining financial activities or Cash Flow from Financing Activities

    The final heading will incorporate the financial transactions made by the company in a particular year, which refers to changes in long and short term debt, issuing of common and preferred stock, and the payments made to shareholders as dividends. The latter amount, along with redemption of long-term debt, will be subtracted as cash is going out, while the others will be added.

  • 5

    Finalizing cash flow statement

    Add the net amount from each of the above three activities to the beginning net income to determine the cash balance at the end of the year.

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