Keeping in check the expenses and returns is very important even for a small-scale business owner. When it comes to corporates and big giants, Cash flow statements play a pivotal role in handling the financial status of the company. There are three most commonly used statements for financial parts are Profit and Loss sheet also known as P&L Statement, the second is Balance sheet and the third is known as cash flow statement. In this article we write about the important of cash flow statement and how to prepare it.
Cashflow statement can be easily defined as the money the company has been spending. companies need t spend their money at different places, like paying the employees, buying new equipment, paying the taxes, repaying the bank loans and many more. Cash Flow statement does exactly this by telling how much money the company has already spent and how much money is remaining in the company. And also helps the companies not to go bankrupt.
There are many uses of cash flow statements; they help in telling where exactly the money went from the company. This again helps the owners to properly access the remaining funds and how to spend them properly.
Cash flow statement also helps in creating excess cash, we already know profits create cash, alongside using statements you can spend less on capital equipment, that means making excess cash. While the balance sheet and P&L sheet does not take in the bank repayments and loans, only cash flow statement can have all the spending and earnings. Its very important of cash flow statements.
Making financial decisions is a tough a risky thing to do, be it buying new equipment or even hire new employees you need huge amounts of cash. When a company is growing and want to make it grow faster it doesn’t matter if we use cash, what matters is how we are going to finance the growth of the company. Depending on the financial stage companies use different finance options, sometimes using up the profits and sometimes even taking loans from the banks.
Cash flow statement monitors the current debt and prevents the excess debts or new debts. It also helps in avoiding unnecessary expenditures, late payment interests and taxes. It will also ensure a proper level of business income with out using or depending on private investment or loans from banks. These are the points of important of cash flow statement.