The cash flow statement
The cash flow statement follows the actual money: what came in, what went out, and the cash left at the end.
Three kinds of cash
From running the business: customers paying, bills and wages paid. From investing: buying an oven, selling old equipment. From financing: loans taken or paid back, money put in by the owners or paid out to them.
The café's year in cash
The café made €20,000 of profit. But this year it paid €12,000 cash for a second oven, which the income statement only counts a little at a time. So the cash it actually kept was much less than its profit.
Why it catches problems
A business can show a profit and still run out of cash, for example when customers pay late. The cash flow statement is where trouble shows first.
Free cash flow
Cash from running the business, minus what it spends on things like ovens and machines, is called free cash flow: the cash that is really free to pay debts or owners.
For you
Your salary, your loan payments, your card bills and your dividends are your cash flow. Portfolio's Upcoming card is its calendar.