Cash flow is considered the lifeblood of a business. Investors or the shareholders of a company can easily check whether it is managing its cash properly or not with the help of its cash flow statement. For any business operating in Australia, it is its cash flow statement (CFS) that tells investors how the money is flowing in and out of the business. It is in the interest of the investors to have a clear understanding of how their money is being utilized by the owners of the business. The cash flow statement reflects the situation of receivables and payables that is of critical importance for the investors.
What do investors look at in a cash flow statement?
For an investor, safeguarding his money is of prime importance. If the business in which they are pumping money is growing, they will obviously get good returns on investment. On the other hand, investment becomes risky when the business is not managing its cash flow in a diligent manner. Investors use the information given in the cash flow statement of a business to decide whether they should invest their money in the business or not.
- Investors use the historic cash flow statements of the business to make future projections about the growth and success of the company
- Cash flow statement gives an insight into the operational, financial, and investing activities of the company
- This statement gives detailed information about the liquidity of the business which is crucial for its growth and expansion in the future
- Investor learns about the financial condition of a business in any given time period
- Cash flow statements allow investors to know more about the cash-generating activities of the business
- Investors get an insight on how the business has dealt with its previous debt obligations
Importance of CFS
The cash flow statement of a business is the most important tool in the hands of investors to know about its profitability and future outlook. This financial document tells how well the company has been managing its funds in the past and what its situation is regarding receivables and payables. One can easily evaluate the financial health of a business by going through its cash flow statement. If a company is making profits, it is visible in its cash flow statement. If it is losing money, it is also clearly visible in this financial document.
Investors are solely interested in how well a business is doing to decide whether they should pump their money into it or not. They can get an insight into the financial health of the business without having to visit the premises of the business. A positive cash flow is a good indicator of the robust health of the business.
As the owner of a business, it is really important for you to manage the flow of capital into and out of the business wisely. The cash flow statement of your business is a tool that is scrutinised deeply by the investors before making a decision about investing in your business. It is therefore very important for you to have a sound cash flow statement before approaching an investor to invest in your business.