A cash flow statement is the summary of the cash inputs and outputs
resulting from transactions in the business. The cash flow statement is very
important for a business and it is usually prepared by the owners or the
managers. Multiple authorities use this statement for different reasons. The managers
need it to make relevant changes, the bankers want it to accept a loan
application and the government wants it for taxes.
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Helmi Agha — Imam & Executive Director, Amyl Council
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A cash flow statement or forecast is equally useful to both internal and
stakeholders of a business since it helps them in assessing the financial
position of a business. For instance, internal stakeholders such as managers
can analyze the cash flow and identify the weak areas that are responsible for
an increase in outflow or leading to a decrease in inflow. The managers and owners
have to analyze and check all the details and transactions of the business.
They have to keep a record of all the business transactions to make effective
decisions for the business. The cash inflow is basically the money coming in
the business and the cash outflow is the money going out of the business. The
managers have to prepare a cash flow forecast to keep a record of the money
that is coming in the business and that is going out of the business every
month.
The bankers need to see the cash flow forecast of the business if they are
asked for a loan. The company that is applying for the loan has to submit its
cash flow statement. The bankers use the cash flow statement to judge the
creditworthiness of the company and see if it qualifies for a loan. They judge
the liquidity position of the business. Liquidity basically means the ability
to pay off the short-term debts. The cash flow statement is important because
the banks are usually reluctant to give loans without a proper statement.
The government authorities also need cash flow statement. They need it for
the calculation of the taxes. The government usually asks for the cash flow
statement for the business to indicate the tax that the business should pay at
the end of the year.

