Cash flow statement

What the cash flow statement shows

The cash flow statement explains how your stock of cash changed over a period. It closes the gap between the profit reported in the income statement and the actual bank balance shown on the balance sheet.

How it differs from a cash flow forecast: The cash flow statement looks backward and is part of the annual accounts. If you want to steer your ability to pay month by month, looking ahead, the cash flow forecast is the right tool.

To do this it splits every cash movement into three areas: cash flow from operations (the day-to-day business), from investing (buying and selling assets) and from financing (loans and equity). The sum of the three gives you the change in cash.

The indirect method step by step

The indirect method starts from net income and works it back into operating cash flow. All amounts in euros.

Item	Amount
Net income	120.000
+ Depreciation	60.000
− Increase in receivables	−25.000
+ Increase in payables	15.000
− Increase in inventory	−10.000
= Cash flow from operations	160.000
− Investments in fixed assets	−90.000
= Cash flow from investing	−90.000
+ Loan drawdown	50.000
− Repayment	−30.000
= Cash flow from financing	20.000
= Change in cash	90.000

Profit is 120,000 euros, but cash only rises by 90,000 euros. The difference sits mainly in the investment and the buildup of receivables.

Generate the cash flow statement automatically

Planvik derives the cash flow statement automatically from your income statement and balance sheet, with cleanly separated sections and linked formulas. No manual rebuilding, no sign errors.

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Direct or indirect method

There are two ways to present operating cash flow:

Direct method: operating cash receipts and payments are set against each other directly, much like a cash flow forecast. Very intuitive, but rare in the annual accounts.
Indirect method: starting from net income, you adjust for non-cash items and changes in working capital. This is the standard under HGB and DRS 21 and the rule in practice.

Both paths lead to the same operating cash flow, they only differ in presentation.

Common mistakes

Depreciation not added back. It reduces profit but costs no cash, so it has to be added back.
Working capital with the wrong sign. A buildup of receivables ties up cash and counts negative, while a rise in payables frees cash up.
Interest counted twice. It is already inside net income.
Investments booked in the operating section. Asset purchases belong in investing activities.

Frequently asked questions

Which method does the bank expect?

The indirect method is the norm, but both are acceptable. What matters is that the derivation is easy to follow.

How is it different from a cash flow forecast?

The cash flow statement looks backward and is part of the annual accounts. A cash flow forecast looks forward month by month and is used for steering.

Do interest payments belong in operating cash flow?

Interest paid may be reported in either the operating or the financing section. The only rule is to handle it consistently.

Why does profit differ from cash flow?

Because of non-cash items such as depreciation, changes in working capital, and investments that do not hit profit but very much affect your cash.