Changes in Cash Flow Funding
The net cash flow in or out for a business for an accounting period must be matched by changes in cash flow funding.
If we use the example cash flow statement below, the top half of the cash flow statement shows the cash flows in and out due to operating. financing and investing activities, the final figure (highlighted in green) represents the net cash flow out of the business, in this case 57,000.
In order for this to happen, the business must match this cash flow out with additional cash flow funding.
The bottom half of the cash flow statement (highlighted in blue) shows how this additional cash flow funding has been found by showing the changes in the various sources of funds available.
In this example a net cash flow out of the business of 57,000 has been funded by an increase in the overdraft of 43,000, an increase in loans of 9,000, and finally the owner has injected a further 5,000 of capital.
|Receipts from trade (EBITDA)||8,000|
|Less to fund working capital||-30,000|
|Operating Cash Flow||-22,000|
|Bank loan repayments||20,000|
|Other loan repayments||1,000|
|Financing Cash Flow||23,000|
|Capital expenditure on fixed assets||14,000|
|Capital receipts from the disposal of fixed assets||-2,000|
|Investing Cash Flow||12,000|
|Net cash received/(paid)||-57,000|
The two sides must always be equal, that is to say the net cash flow in or out of the business must be matched by changes in cash flow funding.