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How Important is a Cash Flow Statement for Singapore Business?

Cash Flow Statement Singapore

Cash is the lifeblood of any business, providing the fuel it needs to operate, expand, and thrive in the competitive marketplace. Fortunately, there is a financial tool that can shed light on the inflows and outflows of money within your organization: the cash flow statement. This vital financial statement serves as a comprehensive record of your business’s cash activities, providing a clear picture of how cash is generated and utilized over a specific period. In this blog post, we will delve into the significance of a cash flow statement Singapore businesses should know about. Read on to discover how this financial tool can empower your business and drive it toward success.

What Is Cash Flow Statement In Singapore?

This key financial statement provides a thorough overview of the inflows and outflows of cash within a business during a specific period. A cash flow statement gives a clear picture of how cash flows through the business, highlighting both the sources—sales income, investments, and loans—and the uses—expenses, investments, and debt payments—of the cash.

Structure of a Cash Flow Statement In Singapore

Cash Flow from Operating Activities (CFO)

Also referred to as cash flow from operations, CFO pertains to the cash generated by a company’s operational activities during a specific timeframe. This category of cash flow is commonly documented in the cash flow statement, which, when combined with the income statement, provides essential financial insights about the organization.

Cash Flow from Investing Activities (CFI)

This involves the cash inflows and outflows arising from non-operational activities, such as long-term investments in stocks, bonds, or the acquisition and disposal of assets like property, plant, and equipment. It also provides insight into whether the company has gained or lost cash due to these activities, resulting in either a positive or negative cash flow.

Cash Flow from Financing Activities (CFF)

This includes the movement of cash associated with external investors and lenders. This section of the cash flow statement sheds light on activities concerning the company’s capital structure and its interactions with external sources of funding. When there is a negative cash flow, it may indicate the need for external equity to sustain the business. 

Disclosure of Non-Cash Activities

This section identifies cash sources unrelated to income, such as proceeds from asset sales, exchanges, loan repayments, and stock splits. Additionally, it encompasses negative cash flows that are not explicitly presented on the cash flow statement, including depreciation and amortization.

Key Components of a Cash Flow Statement In Singapore

A cash flow statement has several components that help to paint a comprehensive picture of the cash flow of the organization. These components include:

  • Operating Activities: This section focuses on the cash generated or used in the core operations of the business. It consists of payments made to suppliers and employees, cash flows from sales of goods and services, and other operating costs.
  • Investment Activities: This section captures cash flows related to investment decisions made by the business, such as investments in securities or other businesses.
  • Financing Activities: This focuses on the financial flows associated with business finance. It includes cash flows from borrowing or repaying loans, issuing or repurchasing shares, and paying dividends to shareholders.
  • Net Income:  Net income is an important component of the cash flow statement as it provides a starting point for reconciling the company’s profitability with its cash flow. It aids in ensuring that the reported net income and the cash flows from operating operations are in line.

Reading the Cash Flow Statement in 4 Simple Steps

Step 1: Adjustments for non-cash items

The first step in reading your cash flow statement is to account for non-cash items. These are expenses or revenues that do not involve the actual movement of cash. Examples of non-cash items include depreciation, amortization, and non-operating gains or losses.

Step 2: Changes in operating assets and liabilities

This process entails analyzing the changes in inventories, accounts payable, accounts receivable, and other current assets and liabilities. An increase in accounts receivable, for instance, indicates cash that has not been collected yet, while an increase in accounts payable signifies cash that has not been paid out. 

When you invest in fixed assets to support the running of your business, it is essential to note that this expenditure is not recorded as an expense in your profit and loss statement. Instead, it is recognized as an asset on your balance sheet, representing something you own. This indicates that the financial impact of buying the asset has yet to be accounted for in the profits, and you’ll need to add it back in at this stage of the cash flow statement analysis.

Step 3: Sale and purchase of fixed assets

When you invest in fixed assets to support the running of your business, it is essential to note that this expenditure is not recorded as an expense in your profit and loss statement. Instead, it is recognized as an asset on your balance sheet, representing something you own. This indicates that the financial impact of buying the asset has yet to be accounted for in the profits, and you’ll need to add it back in at this stage of the cash flow statement analysis.

Step 4: Proceeds from long-term loans

Examine any cash inflows resulting from obtaining long-term loans, as they provide additional funding for the business. This step helps you understand the financial resources available for the company’s operations and investment activities.

Impact on GST-Registered Businesses

For GST-registered businesses, the cash flow statement in Singapore plays a significant role in managing their Goods and Services Tax (GST) obligations and overall financial operations. Here are some key impacts of the cash flow statement on GST-registered businesses:

  • The cash flow statement provides a clear picture of the company’s cash inflows and outflows, enabling accurate GST reporting. 
  • The cash flow statement helps businesses assess their cash position and plan for GST payments. 
  • The cash flow statement can impact the timing of input tax claims for GST-registered businesses. 
  • The cash flow statement assists GST-registered businesses in financial planning and budgeting. 
  • A well-managed cash flow is crucial for GST-registered businesses to meet their GST obligations and maintain financial stability. 

How we can help – Our Accounting Service

At Premia TNC, we offer comprehensive accounting services that provide valuable assistance in optimizing and monitoring the cash flow statement for your Singapore businesses need to secure. By leveraging our accounting service, you can streamline your financial processes, gain valuable insights into your cash flow, and make informed financial decisions. Our expertise and commitment to excellence will empower you to focus on growing your business while ensuring financial stability and success.

Contact us today for a FREE consultation on how our accounting service can help optimize your cash flow management and financial operations.

Cash Flow Statement In Singapore – Frequently Asked Questions

1. What is positive cash flow?

Having a positive cash flow indicates that your business is generating more cash inflows than outflows. This presents valuable opportunities to reinvest the surplus funds into expanding your company. Nevertheless, it is essential to recognize that a positive cash flow does not automatically imply sustained profitability for your business. In certain circumstances, your net income may show a negative value, but your cash flow remains positive due to borrowed funds or other sources of financing.

2. What is negative cash flow?

When your cash flow is negative, it means that during a specific period, your expenses exceeded your incoming cash. While a negative cash flow isn’t always a cause for immediate concern, especially if it stems from investments made for future growth, it should be taken seriously if it persists over multiple periods. Consistent negative cash flow can indicate potential financial instability within your company and should prompt careful evaluation and strategic action to address the underlying issues.

3. How does the cash flow statement differ from other financial statements?

While financial statements focus on the profitability and overall financial position of a business, the cash flow statement specifically focuses on the movement of cash.

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