Cash Flow Statement helps us identify the company status

Cash Flow Statement
Most of you who own companies and are reading this use what is referred to as an Accrual Method of Accounting. This is not as noteworthy for companies with little or no receivables, but companies that have wholesale or retail accounts, it is. In the accrual method, the sales are booked when they are shipped, and recorded as accounts receivables, even if they aren't due to be paid for over a year. When using the Accrual Method, it becomes critical to keep track of cash coming in and out of your account.

The Cash Flow Statement helps us identify when a company is generating more cash than it requires, or conversely, when it is running short of cash. For example, a company may be breaking sales records every month, but if they are not collecting payments for those goods they will certainly run out of cash quickly.

The first part of the Cash Flow Statement identifies Cash Flow From Operating Activities. This is calculated by adding net income, plus depreciation and amortization expenses. Although depreciation and amortization are expenses, these are added in because though they are true costs of doing business, they do not consume cash and therefore don't affect liquidity.

The next part of the Cash Flow Statement is Cash Flow From Investing Operations. This section is comprised of all money spent on capital expenditures (equipment/property purchases) This is always a negative number because we always spend money to purchase capital goods, thereby decreasing available cash. Please note, this is why it is very important to approach capital expenses with caution and always consider how it will affect the Cash Flow Statement. Coffee companies dedicated to constantly upgrading equipment always have the burden of depleting cash for current operations to maintain long term debt payments. It is a dangerous and expensive strategy to maintain over the long term if a company's marketing and promotion are based on the newest/fastest.(Think car companies profitability?) Also included here is also revenue produced from any investments the company made during the period. This includes bonds, GIC's, and other financial instruments.

The third part of the Cash Flow Statement is Cash Flow From Financing Activities. This is not particularly applicable to most coffee companies since few companies issue shares (debt) to finance capital goods. This is where we would record any dividend payments to shareholders (you) during a period, or if the company is re-purchasing shares from a partner and converting them to treasury stock. Again, these transactions are not common, but if your company is incorporated, these line will appear on your financial statements.
Adding all three sections reveals the company Net Change in Cash position.
For a coffee company cash flow is king, no cash...no inventory...no sales...no cash. Conserving cash is The Most Critical component of running a retail company. Slowly building reserves, and wisely investing excess cash is the goal.