Cash Flow Funding

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.

Cash Flow Funding
Receipts from trade (EBITDA) 8,000
Less to fund working capital -30,000
Operating Cash Flow -22,000
Interest paid 2,000
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
Change in
Bank overdraft 43,000
Bank loans 9,000
Other loans
Owner Capital 5,000
Funding 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.

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