Last edited 01 Jul 2018

Cash flow statement

In very general terms, 'cash flow' is the movement of income into and expenditure out of a business (or other entity) over time. If more money is coming into the business than is going out of it, cash flow is said to be 'positive'. If more money is going out, this is negative cash flow.

In construction however, the term 'cash flow' typically refers to an analysis of when costs will be incurred and how much they will amount to during the life of a project.

A cash flow statement (or statement of cash flows), is a reporting mechanism used to show the amount of cash (and cash equivalents) going in (cash inflow) and out (cash outflow) of a business or project. In basic terms, the cash flow statement sets out the extent to which the business or project has enough cash to fund its operating expenses and meet its debt obligations.

In accounting, the cash flow statement is often used to complement the balance sheet and income statement, and is helpful for determining short-term viability. It also helps provide an indication of the amount and timing of future cash flows.

The cash flow statement is typically split into three areas:

Cash flow from operating activities (production, sales, delivery, purchasing, shipping, and so on).
Cash flow from investing activities (purchase or sale of assets, loans made or received, payments related to mergers and acquisition).
Cash flow from financing activities (inflow from investors, outflow as dividends to shareholders, and so on).

Guidance is available from RICS about cash flow forecasting in the construction industry. http://www.rics.org/uk/knowledge/professional-guidance/black-book/cash-flow-forecasting-1st-edition-black-book/