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A cash flow statement is one of the significant financial statements in your business.
And it can be as simple as a one-page cash flow analysis.
Or may involve several statements that aggregate into a unified cash statement.
The statement lists the cash flows in and out of your business.
Picture checking your bank account. Your deposits are the cash inflow. On the other hand, the withdrawals (checks) represent cash outflows.
The remaining balance in your bank account represents the net cash flow at any time.
A cash flow statement also focuses on the timing of the flows. For instance, the statement may list quarterly cash inflows and outflows.
Cash flow analysis entails extracting actionable insights into the data to plug holes in the flow.
One of the most straightforward ways of analyzing your cash flow statement for insights is using charts and graphs.
Imagine you have cash flow data for analysis.
How can you extract actionable insights from this data?
We recommend you use flow-oriented visualizations, such as Sankey Diagram.
A Sankey Diagram is designed specifically to help you extract insights into your cash flow statement.
Besides, as you shall see later, it’s easy to read and interpret.
Google Sheets lacks ready-to-go and insightful cash flow statement-oriented visualization designs, such as Sankey Diagram.
We’re not advising you to dispose of your Google Sheets.
Install a particular add-on in your Google Sheets to access a ready-made Sankey Diagram.
Table of Content:
- What is a Cash Flow Analysis?
- Why Should You Conduct a Cash Flow Analysis?
- How to Conduct a Cash Flow Analysis?
- Wrap Up
Before jumping into the blog’s core, we’ll address the following question: what is a cash flow analysis?
What is a Cash Flow Analysis?
The cash flow statement summarizes the movement of cash and cash equivalents coming in and out of your business.
On the other hand, a cash flow analysis entails extracting insights into the data captured by the cash flow statement.
Some insights you could get include trends, patterns, relationships between key variables, visual flow, outliers, etc.
Conducting this analysis can help you see money’s movement into and out of your business.
One straightforward way to analyze cash flow data is by using visualization charts and graphs.
Why?
Graphs and charts, such as the Sankey Diagram, transform raw numbers into visual diagrams that are easy to interpret. Remember, our brains process visual content 60,000 times faster than raw numbers in tables.
So, it makes sense to visualize cash flow data for in-depth insights, which can help you cut costs in the long term.
In the coming section, we’ll address the following questions: why should you conduct a cash flow analysis? (benefits).
Why Should You Conduct a Cash Flow Analysis?
A cash flow analysis can help you to learn whether your business is earning enough to cover its financial obligations. Or if you have surplus cash after sorting the bills.
Businesses that have just started may experience negative cash flow.
Why?
They’re probably using a large chunk of their cash reserves to grow and expand. That’s okay….only if investors and lenders are willing and keen to support growth.
However, cash flow from operations must turn positive in the long run to sustain the business’s longevity.
Cash flow analysis can help you understand if your business’s cash reserves are from debt, sales, or other forms of financing.
Furthermore, you’re likely to uncover unexpected problems you can easily miss on cash flow statement data.
A cash flow analysis is crucial in determining your business’s working capital — cash at hand for funding operations and making purchases.
So, how do you calculate working capital value?
Working capital=current assets (cash or near-cash assets, like notes receivable) – current liabilities
Long-term negative cash flow is a sign of bankruptcy. Conversely, positive cash flow is a sign of stability and growth potential.
In the coming section, we’ll explain the cash flow formula.
You don’t want to miss this.
Cash Flow Formula
Before conducting a Cash flow analysis, generate cash statements for:
- Operating cash flow
- Investing cash flow
- Financing cash flow
Let’s check them out in-depth.
- Operating cash flow is money from customers minus operating expenses, such as salaries, utilities, supplies, and rent.
- Investing cash flow is money spent on fixed assets and financial instruments, such as property assets, production plants, stocks, etc.
- Financing cash flow is made up of funds from the owners, investors, and creditors. And it’s classified as debt or equity.
Here’s the complete formula of cash flow.
Cash Flow = Cash from operating activities +(-) Cash from investing activities +(-) Cash from financing activities + Beginning cash balance.
Check out the cash flow analysis example below.
- Operating Activities = $20,000
- Investing Activities = $10,000
- Financing Activities = $8,000
- Beginning Cash = $100,000
Cash Flow = $20,000 + (-) $10,000 +(-) $8,000 + $100,000
How to Conduct a Cash Flow Analysis?
Note the cash statement data (above) is small and manageable. In other words, you don’t need complex analysis to gain insights.
Imagine you have data for a financial year.
Where would you start?
To analyze huge rows and columns of cash statement data faster, you need cash flow statement-friendly charts, such as the Sankey Diagram.
Google Sheets (one of the go-to spreadsheet applications) lacks cash flow analysis-based charts and graphs, such as Sankey Diagram.
We’re not advising you to do away with Google Sheets.
You can easily install an add-in in your Google Sheets to access visualizations, such as Sankey Chart.
The application is called ChartExpo.
What is ChartExpo?
ChartExpo is an add-on you can easily install in your Google Sheets to access cash flow oriented visualizations.
Features and Benefits
- ChartExpo is inexpensive compared to other peer tools. The tool will take you back by a mere $10 every month.
- You don’t need coding skills to generate insightful and ready-made charts for analyzing-cash-flow.
- You don’t need calculations coding to visualize your cash flow statement data for insights.
- The cash flow analysis-friendly chart creator has an ultra-friendly user interface to save time and effort.
Example
This section will use a Sankey Diagram (cash flow analysis-friendly chart) to visualize the data below.
| Total Budget | Departments | Spending | Amounts |
| Total Budget | Salaries | Team | 26 |
| Total Budget | Salaries | Drivers | 13 |
| Total Budget | Salaries | Directors | 3 |
| Total Budget | Research & Development | Wind Tunnel Testing | 16 |
| Total Budget | Research & Development | Other R&D | 15 |
| Total Budget | Research & Development | Track Testing | 10 |
| Total Budget | Production | Customer Engine Supply | 20 |
| Total Budget | Production | Manufacturing | 13 |
| Total Budget | Production | Engine | 3 |
| Total Budget | Production | Monocoque | 1 |
| Total Budget | Production | Gearbox | 1 |
| Total Budget | Production | Other | 1 |
| Total Budget | Operations | Logistics | 13 |
| Total Budget | Operations | Entertainment | 10 |
| Total Budget | Operations | Freight | 5 |
| Total Budget | Operations | IT | 4 |
| Total Budget | Operations | Factory and Utilities | 2 |
| Total Budget | Operations | Professional Services | 2 |
| Total Budget | Operations | Fuel | 1 |
- To get started with Cash Flow Analysis Examples, install the ChartExpo add-in for Google Sheets from this link.
- Now head to the Extensions button > Chart, Graphs & Visualizations by ChartExpo > Open.
- Click the Add New Chart button to access your fully stocked library of charts.
- Click the Search box and type “Sankey Chart”.
- It should pop up together with other charts, as shown.
- Select the sheet holding your data and select the Metrics option. Fill in the numerical numbers (in this scenario, we’ll fill in Amounts).
- Select the Dimensions button and fill in the dimensional data (in our example, we’ll use Total budget, Departments, & Spending).
- Click the Create Chart button, as shown.
- Check out the final chart below.
Insights:
Some insights from the Sankey Diagram include the following:
- Company spent significantly on salaries and research & development, with 52% of budget.
- Production has a 2nd highest department on which company spending 25% of budget.
FAQs:
What is cash flow analysis?
A cash flow analysis entails extracting insights into the data captured by the cash flow statement.
Some insights you could get include trends, patterns, relationships between key variables, visual flow, outliers, etc.
Conducting this analysis can help you see money’s movement into and out of your business.
What is the purpose of cash flow analysis?
A cash flow analysis can help you to learn whether your business is earning enough to cover its financial obligations. And if you’ve surplus cash after sorting the bills.
Besides, you’ll be able to understand if your business’s cash reserves are from debt, sales, or other forms of financing.
Wrap Up
A cash flow statement is one of the significant financial statements for your business.
Cash flow analysis entails extracting actionable insights into the data to plug holes in the flow.
One of the most straightforward ways of analyzing your cash flow statement for insights is using charts and graphs.
Imagine you have cash flow data for analysis.
How can you extract actionable insights from this data?
We recommend you use flow-oriented visualization charts, such as Sankey Diagram.
A Sankey Diagram is designed to help you extract insights into your cash flow statement.
Google Sheets lacks ready-to-go and insightful cash flow statement-oriented visualization designs, such as Sankey Diagram.
We recommend you install an add-on, such as ChartExpo, to access ready-made charts for cash flow analysis.
ChartExpo is a Google Sheets add-on loaded with insightful cash flow analysis-based visualizations.
Sign up for a 7-day free trial today to access ready-made and visually stunning cash flow analysis-based charts, such as Sankey Diagram.
