In recent years, the interest of users of financial information regarding the entity's cash flows has grown significantly.

Importance of cash flow statement

Some of the reasons why the cash flow statement is important are:

1. It reveals the impact of an entity's operations on its cash.
2. Make known the origin of the cash flows generated.
3. Make known the destination of the applied cash flows.

Knowledge of the preceding paragraphs provides the user of the financial statements with the reasons for increases or decreases in cash and cash equivalents. For example, it is not the same thing for a company to increase its cash balance and for this to come from a financing at a cost to be paid by their operating activities.

Classification of cash flow statement

The company must classify and present its cash flows, according to their nature, in activities of operation, investment and financing.

The structure of the cash flow statement must include the following items in accordance with NIF B-2:

1. operating activities;
2. investment activities;
3. financing activities;
4.  net increase or decrease in cash and cash equivalents;
5. effects of changes in the value of cash;
6. cash and cash equivalents at the beginning of the period, and
7. cash and cash equivalents at the end of the period.

Operating activities

Operating cash flows are the entity's main source of income. This section establishes activities that are involved in determining the entity's net profit or loss, except for those that pertain to investment or financing activities. For example, cash collection from the sale of goods and services, as well as those derived from royalties, fees, commissions and other income. 

Investment activities

Investing activities include cash inflows and outflows related to the acquisition and sale of long-term assets and other investments not considered cash equivalents. This includes payments and receipts for the purchase and sale of property, plant and equipment; acquisition and sale of financial instruments, such as shares and bonds; and the granting and recovery of loans to third parties. These activities reflect how the entity uses its resources to generate future income or increase its value in the long term, without directly impacting immediate cash.

Financing activities

These activities include cash inflows and outflows related to external sources that finance the entity's operations. This includes obtaining resources through loans, issuing shares and other debt instruments, as well as payments made to reduce these obligations, such as dividend payments, share repurchases and debt settlements. These activities show how the entity obtains and returns capital to finance its operations, directly affecting its capital structure and financial obligations.

Net increase or decrease in cash and cash equivalents

The net increase or decrease in cash and cash equivalents reflects the total change in an entity's cash on hand during a period. It is calculated by adding the net cash flows from operating, investing, and financing activities. If the result is positive, it indicates an increase in cash and cash equivalents, showing that the entity generated more cash than it used. If it is negative, it reflects a decrease, indicating that disbursements exceeded cash inflows. This change is crucial to assess the entity's short-term liquidity and solvency.

Effects of changes in the value of cash

The effects of changes in the value of cash reflect changes in the balance of cash and cash equivalents due to factors other than operating, investing or financing activities, such as fluctuations in exchange rates. This is especially relevant for entities that handle cash in different currencies, as changes in the relative value of currencies can increase or decrease the cash balance without there having been an actual inflow or outflow of cash. This adjustment allows for an accurate representation of the value of cash in the statement of cash flows.

Cash and cash equivalents at the beginning of the period

Represents the amount available in cash and cash equivalents at the beginning of the accounting period. This initial value is the basis on which the net cash flows from operating, investing and financing activities are added or subtracted throughout the period to determine the final balance of cash and cash equivalents.

Cash and cash equivalents at the end of the period

It represents the final balance of cash available at the close of the accounting period, including both cash on hand and cash equivalents, such as highly liquid investments with short-term maturities.

Conclusions

The cash flow statement helps assess an entity's liquidity and sustainability by breaking down how it generates and uses its resources across operating, investing, and financing activities. A positive cash flow from operating activities is a sign of stability, while investing and financing activities reveal growth and capital management strategies.

In addition, the effects of external factors, such as exchange rate fluctuations, adjust balances to reflect the true value of cash. Presenting cash at the beginning and end of the period facilitates financial planning by providing a clear view of the evolution of the cash position.