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Being “In The Red” and Statement of Cash Flows

We at G-Accon are excited to be publishing a new series of articles about company financial soundness and overall financial health. This is the first in our series about the dreaded “Red”.

A common phrase that you might have heard when it comes to finances is being “in the red”. Essentially, this expression describes a business that is operating at a loss or is incurring negative earnings. It means that the business is in debt and owes money. Before the era of computers, accountants and bookkeepers recorded income in black ink and expenses in red ink in the physical financial statement.

For example, if the business posted positive earnings, the number was recorded in black. On the other hand, the debits, losses, and debts were marked with red. So to be “in the red” quite literally meant that you had more red ink (expenses and bills) than black ink (the money to pay them).

Now let’s take a closer look at some of the financial warning signs that every company should be on the lookout for to avoid being “in the red”.
First off, you should start reviewing, analyzing, and auditing your company’s financial statements. This includes the balance sheet, income statement (profit and loss), and cash flow statement which can tell you really crucial information about your company’s financial health.

Next, let’s discuss trouble signs to look for in the cash flow statements. To reiterate, when a company’s cash payments exceed its cash income, the company’s cash flow is negative. One of the trouble signs is when cash flow stays negative over a sustained period. That can be a signal that cash is running low and is at an inadequate amount to cover bills and other obligations. Sustained periods of these negative cash flows can indicate that a company is in financial distress.

So where does G-Accon step in, in terms of helping your company financially?

There are various reports available to G-Accon’s customers, and we will start with the Statement of Cash Flows report. This report basically summarizes the amount of cash and cash equivalents entering and leaving a company. It measures how well a company is managing its cash position – or in other words, how well the company is generating cash to pay off its debt obligations and operating expenses.

G-Accon provides the ability to automatically generate a ​Statement of Cash Flows report. The data for one period can be compared with the previous 12 periods. Users even have the ability to pull data out from as far as 5, 10, or 20 years ago, and analyze the outcome.

Let’s see what the Statement of Cash Flows can show. ​This statement mainly ​displays how much money has been received and spent over a given accounting period. The report has three components of income and expenses: operations, investments, and loans and other financing. The statement’s bottom line (the net change in cash for a period) shows the net increase or decrease in cash for a given period. The net operating cash flow shows whether or not the company’s core business is bringing in money, as opposed to increasing liquidity by taking out loans.

Although G-Accon does not directly build the forecast model, we do provide our clients with all historical and current financial data which allow them to build the forecasting model, using forecasting formulas, do the various analysis and predict the future financial health of the company.

The final step is visually presenting the financial data. Google Spreadsheets can be easily connected to Google Charts, Google Data Studio, Tableau, Power BI, Looker, or any other BI software. The dashboards will be automatically populated and refreshed by the G-Accon add-on.

This is how your ​Statement of Cash Flows can be presented through any preferred BI solution for better visualization. We are presenting a ​Statement of Cash Flows in the Google Charts below.

Statement of Cash Flows Report generated by G-Accon

How important is it to review and audit the company’s cash flow?

As mentioned earlier, the ​Statement of Cash Flows ​measures cash inflows and cash outflows during a given period of time and aids in analyzing the liquidity for short term planning or long term solvency of a company. The company’s cash position can not only help the company to plan for the short term or long term, but can also aid the company in analyzing the optimum level of cash and working capital that is needed.

In our next article, we will describe how the G-Accon Income statement (Profit and Loss) and Cash Summary reports can help you to analyze and audit the financial soundness and health of your company to avoid “being in the red”.

Why leave it there?

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