Cash Flow Statement

A cash flow statement helps understand the actual amount of money that has entered the bank accounts of the company and the money that went out. It provides information about all the cash inflow that a company received via its ongoing operations, investments received by the company, assets sold as well as cash outflow via asset purchase, dividends paid etc. Just like an income statement, cash flow statement is also calculated for a specific period like quarter or year.  

Changes in Working Capital

Working capital refers to the difference between total current assets and total current liabilities. Working capital helps us understand the short-term financial health of the company. If the working capital is positive it indicates that the company has enough short-term assets to pay off its short-term liabilities.

Cumulative effect of change in current asset and current liability over the past year is captured in the data item changes in working capital.  

When current assets of a business are increasing, it is usually because items like accounts receivable, inventory and prepaid expenses are increasing. This means cash is going out of the business as sales are not being made or it is being made on credit. Because of this, change in working capital is positive.

When current liabilities of a business are increasing, it is because accounts payable, accrued expenses etc. is increasing i.e. company has been slowing down the payment of dues and retaining cash. Change in working capital is negative because of this.