Cash flows: can stakeholders tell where your money is going?
- Stakeholders focus on the statement of cash flows to better understand a company's profitability.
- Enhancing cash flow transparency will help users better understand a company's financial health and future prospects.
- Improved financial reporting processes will contribute to the accuracy of the cash flow statement.
Does earnings growth drive cash growth?
When earnings grow but cash flow doesn't, stakeholders will wonder why. This will lead to additional scrutiny of the income statement as well as non-GAAP measures that show profitability.
Is free cash flow positive?
Free cash flow (operating cash flows less cash paid for capital expenditures) is a key metric used by investors and analysts to assess a company's ability to repay debt and pay dividends. When free cash flow is positive, it indicates the company is generating more cash than is used to run and grow the business.
How does cash flow compare to peers?
When assessing a company, investors and analysts want to understand how it compares to its peers. Operating cash flow strips out the impact of estimates and accounting policy elections that may impact earnings, but don't change cash, making comparisons easier.
- Preparing the statement of cash flows earlier in the reporting process to ensure time for a thorough review.
- Determining the cash flow classification of significant transactions (including any non-cash elements) concurrent with the determination of the overall accounting treatment, through the joint efforts of the financial reporting team and the structuring team.
- Monitoring changes in cash management programs, such as structured payables programs or receivables factoring, to ensure they are accurately reflected in the cash flow statement.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.