Cash Flow Statement

The Cash Flow Statement shows how cash moved into, out of, and between different activities of your business over a period. While the P&L shows profit or loss, the cash flow statement shows actual cash movements. Understanding cash flow is critical because profitable companies can still fail if they don't manage cash effectively.

# Cash flow statement structure

The statement organizes cash flows into three sections:

Operating activities: Cash generated from core business operations:

• Cash received from customers
• Cash paid to suppliers and employees
• Interest paid
• Taxes paid

This shows whether operations generate sufficient cash to fund the business.

Investing activities: Cash used to buy or sell long-term assets:

• Purchase of fixed assets (equipment, buildings)
• Sale of fixed assets
• Investment acquisitions or disposals
• Loan originations or repayments to third parties

This shows capital expenditure and investment strategy.

Financing activities: Cash from or used for financing the business:

• Proceeds from debt issuance
• Debt repayments
• Equity issuance (share sales)
• Dividend payments
• Share repurchases

This shows how you fund your business.

The statement starts from net income, shows the cash movements from the three activity categories, and ends with the total cash movement for the period, which matches the change in cash on your balance sheet.

Good to know: A profitable company can have negative cash flow if it collects receivables slowly or invests heavily in assets.

# Accessing the cash flow statement in Light

Generate your cash flow statement:

1. Navigate to Planning & Reports → Reports
2. Select period (month, quarter, or year)
3. Select entities to include (single entity or consolidated)
4. Select the currency view: Entity Crcy (local currency) or Group Crcy (group currency)
5. Click Generate

Light displays the cash flow statement organized by operating, investing, and financing activities.

# Operating cash flow

Operating cash flow shows cash generated from your core business:

Light uses the indirect method: the statement starts with net income from the P&L and adjusts for changes in working capital:

• Change in accounts receivable: increase in receivables = cash outflow (more time to collect), decrease = cash inflow (faster collection)
• Change in accounts payable: increase in payables = cash inflow (more time to pay), decrease = cash outflow (earlier payment)
• Change in inventories: increase in inventory = cash outflow (more inventory purchased), decrease = cash inflow (inventory sold)
• Change in other working capital

Light automatically calculates these adjustments from your ledger.

Tip: Operating cash flow should generally be positive and greater than net income. If operating cash flow is negative, investigate why.

# Investing cash flow

Investing cash flow shows capital expenditures and asset sales:

Cash outflows:

• Capital expenditures (CapEx): Purchases of fixed assets
• Long-term investments
• Loans provided to customers or related parties

Cash inflows:

• Proceeds from asset sales
• Repayment of loans provided
• Sale of investments

Calculate free cash flow = Operating Cash Flow - Capital Expenditures.

This shows cash available for debt repayment and dividends.

# Financing cash flow

Financing cash flow shows how you raise and deploy capital:

Cash inflows:

• Proceeds from debt issuance (new loans)
• Proceeds from equity issuance (share sales)
• Contributions from owners

Cash outflows:

• Debt repayments (principal only, not interest)
• Dividend payments
• Share repurchases
• Owner distributions

This shows how your capital structure evolves.

# Cash flow analysis

Key metrics from the cash flow statement:

Operating cash flow ratio = Operating Cash Flow ÷ Current Liabilities

Shows ability to pay short-term obligations from operations. A ratio > 1 indicates strong operational liquidity.

Free cash flow = Operating Cash Flow - Capital Expenditures

Shows cash available after necessary reinvestment. Used for debt repayment, dividends, and acquisitions.

Cash conversion rate = Operating Cash Flow ÷ Net Income

Shows what percentage of profit is converted to cash. >100% indicates working capital efficiency.

Capital expenditure ratio = Capital Expenditures ÷ Revenue

Shows investment intensity relative to sales.

# Multi-period cash flow analysis

Compare cash flow to prior periods:

1. Navigate to Planning & Reports → Reports
2. Select a comparison period: 1, 3, 6, 9, or 12 months, or 1, 2, or 3 years back
3. Light displays cash flows side-by-side
4. Click any line to drill into transactions

This identifies cash flow trends and movements.

# Working capital analysis

The cash flow statement reveals working capital dynamics:

Operating working capital = Current Assets - Current Liabilities

Tie up in inventory, receivables, and payables.

Cash conversion cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding

Shows how long cash is tied up in operations. Shorter cycles are better.

# Multi-entity cash flow

For organizations with multiple entities:

• Generate cash flow for each subsidiary
• Generate consolidated cash flow combining all entities
• Eliminate inter-company cash flows
• Analyze cash generation by entity

Light automatically handles these consolidation mechanics.

# Multi-currency cash flow

Report cash flow in different currencies:

1. Navigate to Planning & Reports → Reports
2. Select the currency view: Entity Crcy or Group Crcy
3. Light displays amounts in your selected currency

For multinational companies:

• Each subsidiary's cash flow in its local currency
• Consolidated cash flow in group currency
• Light uses the local and group currency amounts recorded on each transaction at posting time

# Dividend coverage

Assess your ability to pay dividends:

Dividend coverage ratio = Operating Cash Flow ÷ Dividends Paid

Shows how many times over you can fund dividends from operations. >2.0x is generally healthy.

# Debt service coverage

For borrowers, lenders evaluate your ability to service debt:

Debt service coverage ratio = Operating Cash Flow ÷ Debt Service

(Debt service = principal + interest payments)

# Tax payment analysis

Understand your tax cash outflows:

1. Navigate to Planning & Reports → Reports
2. View tax payments made during the period
3. Compare to tax expense on P&L (may differ due to timing)

This supports tax planning.

# Exporting cash flow statement

Export cash flow for external distribution:

1. Generate the cash flow statement
2. Click Export
3. Light generates a CSV file

# Related articles

• Reporting overview
• Balance sheet
• Profit and loss
• Trial balance
• Custom reports and filters