Cash flow statements and balance sheets are two tools businesses use to monitor financial health, track profitability, and make strategic decisions. They show how much cash a business has on hand at any given time and give insight into how much the business can pay its bills, invest in the business, or even buy new assets. Cash flow is usually presented as either monthly or yearly totals because they measure different things.

What is Cash Flow on a Yearly Basis?

Cash flow on a yearly basis takes the total cash flow for the year and divides it by the number of months in that year. This can help you get a better picture of your business’s financial health by isolating the year’s cash flow from the activities that took place that year. This can also be helpful when trying to earn financing from a bank because they may pull your annual cash flow statement to assess your business’s financial health.

What is Cash Flow on a Monthly Basis?

Cash flow on a monthly basis takes the total cash flow for that month and divides it by the number of weeks in that month. This will give you an average cash flow for the month so that you can see if you had a high or low cash flow month. This is also helpful for business owners to forecast their cash flow for the next month.

How to Calculate Cash Flow on a Yearly Basis

The total cash flow for the year is the sum of all the cash inflows from the beginning of the year (e.g., cash from sales) to the end of the year (e.g., cash from payment for services or products). The total cash outflows for the year are the sum of all the cash outflows from the beginning to the end of the year.

So, if your business took in $50,000 in sales in January, $60,000 in sales in February, $70,000 in sales in March, $75,000 in sales in April, $80,000 in sales in May, $90,000 in sales in June, $100,000 in sales in July, $80,000 in sales in August, $75,000 in sales in September, $70,000 in sales in October, $60,000 in sales in November, and $50,000 in sales in December, then your total cash flow for the year would be: Total Cash Flow (2021) = $500,000

Cash Flow Statement on a Monthly Basis

The cash flow statement on a monthly basis gives you a general idea of how much cash is flowing in and out of your business on a monthly basis. There are many different ways to calculate monthly cash flow, but the most common method is adding up the cash inflows and outflows for the month and subtracting the outflows from the inflows.

If your business took a $10,000 cash inflow from sales in January, a $5,000 cash inflow from sales in February, a $6,000 cash inflow from sales in March, a $7,000 cash outflow for general and administrative costs in January, a $5,000 cash outflow for rent in February, a $7,000 cash outflow for inventory in January, a $5,000 cash outflow for salaries in January, a $6,000 cash outflow for utilities in February, and a $4,000 cash outflow for inventory in March, then your monthly cash flow statement would look like this.

Cash Flow Statement (January) – $10,000 Cash Inflow from Sales + $5,000 Cash Inflow from Sales + $6,000 Cash Inflow from Sales Cash Flow Statement (February) – $5,000 Cash Outflow for General and Administrative Costs + $7,000 Cash Outflow for Inventory Cash Flow Statement (March) – $5,000 Cash Outflow for Rent + $7,000 Cash Outflow for Inventory

How is Cash Flow Different from the Balance Sheet?

Cash flow and the balance sheet are different because they calculate different things. While the balance sheet shows your business’s assets, liabilities, and equity as of a certain point in time, cash flow shows how much cash is flowing in and out of your business over time.

The cash flow statement is a breakdown of how much cash is coming in from various sources and how much cash is going out to various expenses. On the other hand, the balance sheet includes the total assets, liabilities, and equity at a certain point in time.

Conclusion

A company’s cash flow is an important indicator of its financial health. It can also be a useful forecasting tool to predict cash flow in the future when used in conjunction with the company’s balance sheet and income statement. While there are a few different ways to calculate cash flow, they all show how much cash flows are in and out of business over time. The cash flow statement is a breakdown of how much cash is coming in from various sources and how much cash is going out to various expenses. On the other hand, the balance sheet includes the total assets, liabilities, and equity at a certain point in time.