Quick answer
A cash flow statement is a financial report showing the cash a business received and paid over a past period, grouped into operating, investing and financing activities. It reconciles the opening and closing bank balances and explains why cash moved differently from profit. In Australia the formal version follows accounting standard AASB 107, and lenders use it to judge whether trading generates enough cash to repay debt.
Key points
- Three sections: operating (trading), investing (assets) and financing (loans, capital and drawings)
- Operating cash flow is the line lenders care about most, because loan repayments come from it
- The indirect method starts from profit and adjusts for non-cash items and working capital changes
- business.gov.au also uses the term for a month-by-month cash plan, so check which version a lender wants
Profit tells you whether the business earned money. The cash flow statement tells you where that money actually went. It’s one of the three core financial reports, alongside the profit and loss statement and the balance sheet, and it’s the one that links them: start with last year’s bank balance, account for every dollar in and out, and you arrive at this year’s.
Two meanings worth separating
In accounting, a cash flow statement is a historical report prepared under AASB 107, the Australian version of the international standard on cash flows. It covers a completed period, usually a financial year.
On business.gov.au, the same name is given to a simple month-by-month template that rolls a starting bank figure forward through receipts and payments, which can hold actual figures or estimates. Used for estimates, that’s really a cash flow forecast. When a lender asks for “a cash flow statement”, it’s worth a quick question: do they want last year’s accountant-prepared report, or a projection of the year ahead?
The three sections
| Section | What it captures | Typical items |
|---|---|---|
| Operating | Cash from running the business | Customer receipts, supplier payments, wages, super, GST and income tax |
| Investing | Cash spent on or raised from long-term assets | Buying a truck, selling old equipment, a property deposit |
| Financing | Cash from or to lenders and owners | New loan funds, principal repayments, owner drawings, dividends |
Lenders go to the operating line first. Repayments have to come from trading, not from selling assets or borrowing elsewhere, so a business whose operating cash flow consistently covers its debt payments is in a strong position. Our debt service coverage ratio calculator turns that idea into a single number.
Worked example: where $120k of profit went
A Newcastle landscaping company reports a net profit of $120k. Its accountant prepares the operating section using the indirect method, which starts from profit and adjusts it:
| Line | Amount |
|---|---|
| Net profit | $120k |
| Add back depreciation (non-cash) | +$25k |
| Customers owe more than last year | –$48k |
| Extra stock of plants and pavers | –$20k |
| Suppliers owed a little more | +$9k |
| Net cash from operating activities | $86k |
Then the other two sections. A new tipper truck cost $70k (investing). In financing, a $50k equipment loan came in, $30k of loan principal was repaid and the owners drew $40k, a net outflow of $20k.
Overall: $86k minus $70k minus $20k leaves a $4k fall in cash, so the bank balance went from $30k to $26k. Profit was strong, but growth in debtors soaked up much of it. A lender reading this would probably see a healthy business whose cash is tied up in slow-paying customers, which is exactly the profile invoice finance is designed for.
Want to know what your own figures could support? Send us the basics and our team will review them.
What if you don’t have formal statements?
Many small businesses never prepare a formal cash flow statement, and that doesn’t rule out borrowing. Banks generally want full financials for bigger loans, but numerous non-bank lenders work from BAS and bank statements instead. See business loans without financials and our comparison of low doc vs full doc business loans.
Related terms: cash flow, EBITDA, working capital.
Let your numbers do the talking
Whether your statements are accountant-polished or still sitting in bank exports, we can work with what you have. Sending an enquiry takes around one minute and won’t leave a footprint on your credit report. Rather than forwarding your details to a long list of funders, a member of our team studies them and gives you a call. The more closely your answers match your books, the more useful that first conversation tends to be.
Frequently asked questions
What are the three parts of a cash flow statement?
Operating activities cover cash from customers and payments to suppliers, staff and the ATO. Investing activities cover buying or selling assets such as equipment, vehicles or property. Financing activities cover borrowing, repaying loan principal, owner contributions and drawings or dividends.
Is a cash flow statement the same as a profit and loss statement?
No. A profit and loss records income and expenses when they're earned or incurred, including non-cash items like depreciation. A cash flow statement records only actual cash movements, so it includes loan principal and asset purchases that don't appear as expenses.
Do small businesses have to prepare a cash flow statement?
Many small private businesses aren't required to prepare formal general purpose financial statements. Even so, accountants can produce one from your accounting file, and a bank may ask for one with larger or more complex loan applications.
What is the difference between the direct and indirect method?
The direct method lists actual cash receipts and payments by type. The indirect method starts with profit and adjusts it for depreciation and changes in debtors, stock and creditors. AASB 107 permits both and encourages the direct method, but the indirect method is very common in practice.
Why would operating cash flow be negative when the business is profitable?
Usually because cash is tied up in growth: customers owe more, stock levels have risen, or suppliers are being paid faster. A negative operating figure in a growth year isn't automatically a problem, but lenders will want it explained.