The purpose of a cash flow statement, or CFS, is to get a quick view of how money is currently moving in and out of a business. While a CFS is mainly used by businesses, ordinary taxpayers also use it to manage their finances for life events such as retirement. They may use it as a tool for reallocating their investment portfolios in much the same way a business may use it to redistribute its investments.Continue Reading
The CFS captures every expenditure during a fiscal year. If the company is publicly traded, then investors can use this financial statement to see a snapshot of how the company's operations are going based on what cash is going out the door and what cash is coming in.
The CFS is presented in spreadsheet form with categories and subcategories for depreciation, decrease in accounts receivable, increase in accounts payable and increase in inventory, among other line items. Clothing, food and groceries might be typical entries for noncommercial CFS documents. Whether for businesses or households, the CFS acts as an instrument to make forecasts about future spending.
If the CFS shows the company is in the red, this may not be a bad thing necessarily. The reason could be that the company made certain acquisitions and understood that for this particular fiscal year, it would have to take a hit.Learn more about Financial Planning