Capital flow statement


 

A capital flow statement (also known as a cash flow statement) serves to provide information about the company's financial state. It systematically lists the source as well as the use of financial instruments opposite each other.
A company's cash flow may be presented directly or indirectly. While the direct form (compiling cash inflow and outflow) is subdivided into various main categories (for example income from sales revenue, payments from material expenses, etc.), the indirect form of compilation assesses the annual financial statement and corrects it at the end by calculating non-cash business transactions.

Independent of the method selected, financial instrument flow is organised according to

  • operational activity,
  • investment activity, as well as
  • financing activity.

 

The capital flow statement is gaining in importance because the profit and loss account is of very limited meaning with regard to the company's profitability and liquidity position; this is due to the influence of purely technical accounting processes (such as write-offs and accumulation of provisions). According to the German Commercial Code, it is compulsory to make capital flow statements for consolidated financial statements. In IFRS, this applies to all annual financial statements.

 

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