Cash flow statement

The task of the cash flow statement (also called cash flow statement) is to transparently present the cash flows of a company.

Definition / explanation

The cash flow statement is an instrument for presenting the financial position of a company. The subject of consideration is exclusively all cash deposits and payments of the respective time period. In essence, it is more precisely conceptual to speak of a “cash flow statement”. The English-language variant cash flow has therefore also established itself as a term.

Cash flow statement

The cash flow statement is made up of three components:

• Cash flow from operating activities
• Cash flow from investing activities
• Cash flow from financing activities

There are two levels of consideration, the retrospective cash flow statement and the prospective cash flow statement.

The retrospective view is based on the past; it is essentially created in connection with annual financial statements.

The prospective view is future-oriented and serves the concrete planning of future periods. It is a financial plan for assessing future solvency.

Direct and indirect method

Methodologically, two types of calculation are used for the cash flow statement. On the one hand the indirect method and on the other hand the direct method. In practice, the indirect method is used as far as possible, since the cash flow components can be determined from the annual surplus in the income statement.

Indirect method

The basis is the annual financial statements, which are corrected for the non-cash items in order to determine the cash flow. This is carried out separately for operational activity, investment activity and financing activity.

The result of the addition of the cash flows is then adjusted for changes due to exchange rates. The sum determined in this way is added to the starting balance of the reporting period under consideration and results in the financial resources at the end of the period.

Direct method

The basis of the cash flow determination is not the annual surplus in the income statement but the specific internal payments and payments made by the company in the respective period. This means that with the operative cash flow, the individual payments from customers as well as other payments are determined piece by piece. This also applies to payments such as supplier invoices.

The cash flow from investing and financing activities is determined using the indirect method. This also applies to the summary of the results including changes in value from exchange rate adjustments.

Cash flow statement in the balance sheet

The obligation to prepare a cash flow statement is regulated differently within the framework of balance sheets. The decisive factor is the standard according to which accounting is carried out.

According to the German Commercial Code (HGB), a cash flow statement is only required for consolidated financial statements. If the accounting is carried out in accordance with international standards such as IFRS and US GAAB, it is fundamentally a necessary component of the annual financial statements.

Summary