Perhaps, the most overlooked financial statement in the financials is the cash flow statement. Often it’s not there as part of the reporting package.

This statement can be very critical to understanding how the cash is flowing in your business. Cash is king. Cash is the life blood of your company.

The cash flow statement has three main legs to it. This can give you insight in terms of how your company is really doing. It could be more meaningful than the profit and loss statement and the balance sheet. Let’s look at the three:

1. Cash from operations. This looks at how much cash flow is your company generating during the month. It goes beyond your net income because it also looks at some of the working capital required to support that income. You might have positive net income, but on the other hand your receivables are growing just as fast. So rather than cash being generated from operation, all you’re doing is moving it from one hand to the other. The net income is going into accounts receivable and there’s not any change in cash. This is a key number to look at of all three areas in the cash flow statement. This is a number that gives meaning that the income statement cannot.

2. Cash from investments. This shows the long-term investing that you have to do in your business that goes beyond the annual operation. Most will be capital expenditures for real estate, machinery and equipment, furniture and fixtures, vehicles and other fixed assets. These are broken out separately because these are building long-term assets rather than annual operating expenditures. This gives you the number for what you have to invest into the business in order to sustain it.

3. Cash from financing. This is where you cover the needs that you had from operation and investing or how you use the surplus cash that was generated. Did you raise equity or take on more debt, such as bank debt? Were you able to pay-off some bank debt, leases and other notes payable? This shows what cash you had to bring in from the outside to sustain and fund the operation, or how were you able to return back to financing sources.

So, those are the three legs of the cash flow statement. Know them well. They give you insights into your company that no other statement can tell you.