Cash Flow control is the way used by a company in managing all aspects of the financial end of the business, such as the collection of revenue as well as the investing of the company's cash and other assets. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash even while profitable.
Statement of Cash Flows
- Operating cash flows: the principal revenue-producing activities of the entity and are generally calculated by applying the indirect method, whereby profit or loss is adjusted for the effects of transaction of a non-cash nature, any deferrals or accruals of past or future cash receipts or payments, and items of income or expense associated with investing or financing cash flows.
- Investing cash flows: the acquisition and disposal of long-term assets and other investments not included in cash equivalents. These represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. Only expenditures that result in a recognized asset in the statement of financial position are eligible for classification as investing activities.
- Financing cash flows: activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. These are important because they are useful in predicting claims on future cash flows by providers of capital to the entity.