How to Make an Effective Cash Flow Statement


Basic knowledge about matters related to accounting and recording financial transactions are a prerequisite for successful management. Knowing what is happening to the company’s capital and keeping all the information organized is extremely important when the goal is to have a healthy and growing business. for an assessment

From this, the cash flow statement (DFC) is a strong ally in the task of recording and managing all the resources involved in the business activity. It indicates what the inflows and outflows were in the cash register and thus shows the context in which the company is located and its ability to generate cash and cash equivalents.

In addition to being a mandatory demonstration for many types of company, DFC allows the manager to know the financial context and the possibilities of his enterprise. From it, it is also possible to detect situations of fraud or accounting errors.

Given its importance, we list below some important steps for anyone who wants to know how to do cash flow demonstration and ensure the prosperity and financial organization of your business. Check it out and ask your questions about it!

Structure of the DFC

Structure of the DFC

The DFC is structured around operational, investment and financing activities. According to the Accounting Portal , this structure results from the approval, in 2008, of CVM Deliberation 547/2008, which approved Technical Pronouncement CPC 03 and addresses the cash flow statement.

The CPC is a Accounting Pronouncements Committee that regulates accounting standards in Brazil and its purpose is to study, prepare and issue some Technical Pronouncements on Accounting Procedures. Therefore, it is necessary to comply with this regulation to ensure not only its financial health, but also its legality.

Next, we will explain each of these activities involved in structuring the CFD so that it is possible to make a correct demonstration that fulfills its task of assisting in the administration of the company. Follow us!

Operational activities

Operational activities

Operating activities are the main revenue generating operations of the company. From these, the amount of cash flow is structured that allows the fulfillment of obligations such as payment of suppliers, amortization of loans, maintenance of operational activity, payment of fixed costs, among others.

All events that do not fall into investment or financing activities are classified as operating activities – covering processes from production to sale of the final product.

Investment activities

Investment activities

Anyone who is looking for how to make efficient cash flow demonstration should pay attention to investment activities. They consist of the movement of assets, whether through purchase or sale of them.

Among these assets, the acquisition of equipment, works of art and / or participation in other companies are some examples that fall into the investment group. To be part of this classification, it is necessary to observe whether the purpose of the asset is to bring benefits and income to the company. However, such assets should not play a fundamental role in maintaining the activities considered routine and not even essential to the normal operation of the company.

In this way, we can conclude that any non-current assets that bring benefits to the company can be classified as investment activity.

Financing activities

Financing activities

The financing activities are those carried out to finance the business activities. When the need for recourse can not be supplied by the company itself, it is necessary to raise capital from third parties in order to maintain operational activities.

Whether through the issuance of debentures, loans, promissory notes or other debt securities, the recording of financing activities allow a forecast of future cash needs and the obligations that must be honored in the coming periods.

Result of DFC

Result of DFC

The structure of the cash flow and its statement is the sum of the net result of the three types of activity that the DFC encompasses. As the Financial Dictionary points out, it should also take into account the difference in balances between the beginning and the end of the period considered.

This result is a good tool to guide the manager’s decision making, based on actual figures that show the company’s financial situation. From this, it will be possible to solve problems such as pressure to reduce costs, problems of financial and employee management, improved control of fixed and variable costs and negotiation with suppliers.

Methods of elaborating the CFD

Methods of elaborating the CFD

The DFC can be elaborated from the direct method or from the indirect method. While the direct method consists of presenting the cash flows through their gross values, the indirect method determines that these flows must be demonstrated from net income – with the proper adjustment of accounts that affect the result, such as amortization and depreciation.

The gross value corresponds to the original value, that is, really what went in or out without reductions. The net amount consists of the movement of the cash flow after some deductions have been made.

The first step to knowing how to do cash flow demonstration was given. Now you need to apply that knowledge and structure your demonstration to reap the benefits that that practice can bring.

Tip: The Treasy platform offers a free downloadable cash flow demonstration template that can help you track your company’s financial performance. How about starting here? It is a good way to apply your knowledge to make an effective cash flow statement.

Although the entrepreneur has the necessary technical knowledge to run the company and to continue business, problems related to financial management can be easily solved by deepening the subject and some specialized help.

Those who intend to organize themselves financially, be more productive or carry out a more efficient management must keep up to date and seek constant learning, especially with regard to accounting and financial organization. Now that you already know how to do cash flow demonstration, check out 4 practical tips to make the financial manager’s day-to-day life easier , they will help you to perfect yourself and have even better business results!

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