CASH FLOW STATEMENT: LEARN TO CREATE CASH FLOW STATEMENT TEMPLATE IN EXCEL

Welcome to our following how-to guide: How to Create a Cash Flow Statement. Arguably the most critical financial statement for deriving the liquidity and operational efficiency of a company, this blog post will provide a hands-on, step-by-step guide to creating a template cash flow statement, using LinkedIn as an example. In this blog post, you will learn to get data relevant to your firm, classify items in the balance sheet, set up a template in Excel, and calculate your cash balance. This course is designed to learn about the basics of cash flow statements and their significance in modeling and valuing a company. So, let’s get started!

What is a Cash Flow Statement?

In financial accounting, a Cash Flow Statement, also known as a Statement of Cash Flow, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents. It breaks the analysis down into operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7) is the International Accounting Standard that deals with cash flow statements.

People and Groups Concerned with Cash Flow Statements

• Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses.
• Potential lenders or creditors, who want a clear picture of a company’s ability to repay.
• Potential investors, who need to judge whether the company is financially sound.
• Potential employees or contractors, who need to know whether the company will be able to afford compensation.
• Shareholders of the business.

If you have done financial modeling, you will know that making the right cash flow statement is one of the critical tasks in the process of valuing a company. Creating an accurate cash flow statement with all line items as per the annual report of the company is an excellent idea, but it requires a lot of accounting information about the company. As an Analyst, you often lack the information needed to make a detailed cash flow statement.

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As an Analyst, you only need to have the balancing figure of “Cash and Cash equivalents” to tally the balance sheet and compute the required figure. One does not need to create a detailed cash flow account as per the company’s annual report. You can easily determine the required Cash and Cash equivalents amount using the following equation:

Cash and Cash Equivalents = Total Liabilities + Shareholders’ Equity – Total Assets (Except Cash and Cash Equivalents)

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Today we’ll learn how to create a Cash Flow Statement Template for a real-life company – ‘LinkedIn’. Let’s get started!

Task 1 in Creating a Cash Flow Template: Getting Relevant Data for the Company

The numbers we need for creating the Cash Flow Statement for LinkedIn can be found in any of its annual reports or filings. There are many sources on the Internet, such as the SEC website, the company’s website, etc., where you can find these reports.

Source: LinkedIn

Download both the PDF file and the Excel file by clicking the links indicated in the above image. After downloading the Excel file, clean the data for the P&L account and balance sheet, and present it in a format similar to the one shown below.

Task 2 in Creating a Cash Flow Template: Classifying Balance Sheet Items

Classify each item on the balance sheet under Operating Activity, Investing Activity, or Financing Activity depending on how they impact the business.

Task 3 in Creating a Cash Flow Template: Developing the Template in Excel

Type in the balance sheet items as you’ve classified them. Remember that the first item under Operating Activities is the Net Income.

Just above the parameters, mention the currency and unit of the values you’ll enter into the balance sheet. Enter the first year of projection in the next column. In our case, we start from 2010 and extend until 2012.

Thereafter, you can change the format of the years. To do so, select the fiscal years and press ‘Ctrl+1’ to change the format to ‘FY 0’.

Format the title row as shown below. Ensure that you mention ‘Year Ending’ above the years.

The Net Income values must be linked from the income statement.

An increase in assets leads to a decrease in cash; hence, we deduct the value in 2012 from the value in 2011 to get the cash flow for 2012. Using a similar method, calculate the cash outflow for all the operating items under assets.

An increase in liabilities leads to an increase in cash; hence, we deduct the 2011 value from the 2012 value to get the cash flow for 2012. Using a similar method, calculate the cash inflow for all the operating items under liabilities.

Using a similar concept as illustrated, we can calculate the cash inflows and outflows due to investing and financing activities.

Task 4 in Creating Cash Flow Template: Calculating Cash Balance

Calculate the total cash flow from operating activities.

Calculating total cash flow from investing activities.

Calculating total cash flow from financing activities.

Calculating Change in Cash

The sum of cash flow from operating, investing, and financing activities gives us the overall change in the cash balance for that year.

Calculating Final Cash Balance

Note that the cash at the beginning of the current year equals the cash at the end of the previous year.

Final Cash Flow Statement

This is our final Cash Flow Statement. Note that we haven’t shown the Cash Flow for 2010. This is because our balance sheet does not have 2009 data. It is a simple matter of extending the formulas otherwise.

Apart from helping companies track the inflow and outflow of cash, the Cash Flow statements can also be used by investors and creditors. Investors can estimate the future cash flows of the company through the Cash Flow statement, which helps them in making investment decisions. It also helps them analyze operating, investing, and financial activities in an organization. The Cash Flow statement provides insight into the liquidity status and solvency of a company and its cash-generating ability. The Cash Flow statement also helps debtors and creditors determine the repayment capacity and capability of the company.

In case you’re interested in learning in-depth about how to create Cash Flow Statement templates and complex financial models for companies, you can join our financial modeling course .

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