The cash flow statement provides an understanding of “why and how” the amount of cash changed during the period.

It shows how much cash was on hand at the beginning of the period and how much is on hand at the end of the period. It also shows where the cash came from and what it was spent on.

Many managers in companies are not familiar with the cash flow statement. One reason is they are rarely provided the statement.
The cash flow statement is developed and utilized by the financial departments. It is their job to help manage it. The goal of all companies is positive cash flow over time.

There may be periods when the cash flow is negative, even for profitable companies. For example, companies with high seasonality may have to purchase large sums of raw material inventory prior to the high demand season. These large purchases may produce a negative cash flow for a period.

Most companies also purchase equipment, which often requires large sums of money. The company must determine if they are going to make these large purchases with cash or borrow money.

When a manager understands the cash flow of their company, they understand some of the reasons for financial decisions. It will also help the manager make decisions.