Knowing Your Cash Flow

We have all heard the saying that “Cash is King,” and any company’s end goal is to generate cash from a core service or manufacturing of goods. The Statement of Cash Flows can be seen as the most valuable tool in assessing a company’s true health by providing insights beyond what the Profit & Loss and Balance Sheet will show. As such, it is important to understand how others will perceive the value of your company based on its ability to generate cash.

At Opus Consulting Group, we specialize in helping our clients to better manage, and predict their future cash standings. Effectively managing cash balances allows firms to navigate periods of turnaround and helps companies understand how bankers and investors will perceive the value of their company. The basic sections of the Statement of Cash Flows can be broken down into 3 general categories: cash received from Operations, Investing and Financing activities.

Cash derived from Operations shows a firm’s ability to generate cash from its core activity and adjusts net income based on current payables and uncollected receipts. If the cash from operations is consistently less than net income, then the enterprise is struggling to turn its receipts into cash.

Changes from acquiring new equipment and selling assets is listed under Investing activities. Changes to Investing cash flow highlights a firm’s efforts to expand or downsize the company and provides insight to the firm’s ability to self-fund its own expansion.

Cash from Financing activities shows increases from issuing stock or payouts to shareholders in the form of distributions or dividends.  Often early stage companies require cash from Financing activities to support negative cash from operations and the investment in new equipment.

Understanding the Statement of Cash Flows provides vital insight into a firm’s true health. Opus Consulting Group helps clients see their business through a different lens and understand how others will assess the value of their company.