Cash Flow Story

Follow this video to understand and utilize the Cash Flow Story widget on the main page of CFO Scoreboard:

The Cash Flow Story section of CFO Scoreboard shows how Operating Cash Flow was generated by the business. Candidly, this is one of the most important features of CFO Scoreboard because you can’t spend your profits…. You can only spend cash and the cash flow the business generates is a primary indicator of the health of your business.

Remember that Operating cash flow is the cash that flows in and out of your business through its normal operations, excluding any cash that might come from or be used by investing or financing activities. If you need a refresher on OCF and why it’s important, there’s a link below to a teaching video about it.

The Cash Flow Story is very similar to a cash flow statement that you might get from your accountant. It uses a technique called the “indirect method” to calculate cash flow.

We start with your profits – if you have positive profits, that’s theoretically good for operating cash. Next, we add back depreciation and amortization, which are two types of expenses that reduce your profits but don’t impact your cash.

The rest of the cash flow story looks at categories on your balance sheet that involve operating cash.

Take Accounts Receivable for example. Accounts Receivable represents cash you haven’t collected yet, so if A/R goes up, it’s bad for cash. Inventory and Other Current Assets have a similar affect…. If you spend money on inventory, you have less cash in the bank, so when Inventory increases, it’s bad for cash.

Accounts Payable represents money that you owe to your vendors and suppliers. It’s cash you haven’t yet spent, so if A/P goes up, it’s good for cash. Similarly, if your Taxes Payable or your Other Current Liabilities increase, that’s also good for cash.

By adding and subtracting selected sections of your income statement and balance sheet, we can calculate the operating cash flow of your business.