Analyze Past Cash Flow: A Critical Step

author Edgar de Wit


Reducing Cash Management Risk in an Ever-Changing Financial Landscape

As a financial controller or director, you understand the importance of cash flow management in ensuring the success of your business. One of the first steps in effective cash flow planning is the analysis of past cash flow.

This process involves a thorough review of historical cash flow statements. And the goal is to gain a better understanding of the company's past financial performance.

This article covers the essentials of cash flow analysis and suggests why it is a fundamental part of the cash flow management process.

What are the key components of the analysis of cash flow?

In your analysis, the following components are crucial for your analysis.

Cash Inflows

The first step in cash flow analysis is to evaluate the company's cash inflows.

This includes sources of inflow cash such as sales revenue, investment income, and other forms of income. Understanding the sources and timing of cash inflows is important to forecast future cash flow and plan for potential short-term cash shortages.

Here are some examples of cash inflows:

  • Sales revenue from products or services
  • Interest earned on savings or investments
  • Rental income from properties
  • Sale of assets such as real estate, stocks, or equipment
  • Government grants or subsidies

Cash Outflows

The next step in cash flow analysis is to evaluate the company's cash outflows. This includes expenditures such as operating expenses, capital expenditures, and debt repayments.

Assessing cash outflows is essential to pinpoint areas where savings might be achievable and verify that expenses concur with the organization's financial objectives.

Here are some examples of cash outflows:

  • Purchases of goods or materials for production or resale
  • Operating expenses such as rent, utilities, salaries, and insurance
  • Repayment of loans or interest on loans
  • Purchases of equipment or property
  • Taxes owed to the government

Timing of Cash Flows

Example cashflow forecast

Finally, cash flow analysis involves understanding the timing of cash inflows and outflows.

This includes understanding when cash inflows and outflows are expected to occur, and the impact of these events on the company's overall cash position.

Knowing the timing of cash flows allows financial managers to plan for potential short-term cash shortages. And to ensure that cash is available when needed for expenditures.

Why Analysis of Past Cash Flow is Critical

Analysis of past cash flow is a critical step in the cash flow planning process because it provides a foundation for effective cash flow management.

By understanding the sources and timing of cash inflows and outflows, financial managers can make informed decisions about future cash flow and plan for potential short-term cash shortages.

Similarly, payment providers such as American Express endorse the importance of this analysis.

This information can also be used to identify areas where cost savings may be possible and to ensure that expenditures are aligned with the company's overall financial goals.

Analyzing your past cash flow can be done in several ways. What is essential is selecting the approach that most accurately meets your requirements and equips you with the knowledge to make wise decisions about your business's financial direction.

The "cash flow waterfall" is a well-used process of analyzing financial transactions. Through this approach, documenting all sources and uses of money acquired by your company over some time allows you to detect patterns and recognize trends in your cash flow.

Another common method is known as the "balance sheet approach." This approach focuses on your company's assets and liabilities, rather than its actual cash flows. This information can be used to create a picture of your company's overall financial health.

Example cashflow statement

Regardless of which method you choose, analyzing your past cash flow is an essential part of effective cash management. By taking the time to understand where your business has been financially, you can make better decisions about where it should go in the future.

Finally, Past Cash Flow Helps You to Improve Future Stability

Analyzing past cash flow is not only beneficial in terms of understanding a company's past financial performance, but it also helps in forecasting future cash flow.

By analyzing past cash flow statements, a company can identify trends and patterns in its cash inflows and outflows. For example, a company may notice that its sales tend to be highest during a certain time of the year, or that certain expenses tend to be higher during certain months.

This information can then be used to create more accurate cash flow projections for the future.


Suppose a fruit farmer named Sarah owns a large orchard that specializes in apples and pears. She has been in business for several years and has seen steady growth, but lately, she's noticed that her cash flow is becoming increasingly tight. Sarah has heard about the importance of cash flow analysis and decided to take a closer look at her past cash flow statements.

With the help of a reporting and forecasting platform, such as XLReporting, Sarah can analyze her past cash flow in detail. She starts by reviewing her cash inflows, including sales of apples and pears, as well as any other sources of income. She also takes a close look at her cash outflows, including expenses for supplies, labor, and maintenance.

Sarah can identify a few key trends in her past cash flow. For example, she notices that her sales are highest in the fall when her apples and pears are ready to be harvested, but her expenses are also highest at this time, due to the added costs of labor and supplies. She also realizes that she is having trouble collecting payments from some of her customers, which is delaying her cash inflows.

With this information, Sarah can make some strategic decisions to improve her cash flow. For example, she decides to offer discounts to customers who pay their bills early, which will help to speed up her cash inflows. She also decides to adjust her budget to better manage her expenses during her busiest season, which will help her to maintain a positive cash flow even when her sales are high.

Sarah has gained an insightful perspective on her business's financial performance by studying its past cash flow. This knowledge has enabled her to make informed decisions that will foster her company's growth and prosperity. One of the several advantages of taking a closer look at a company's cash flow is exemplified here.


In conclusion, analysis of past cash flow is an essential step in the cash flow planning process.

By studying past cash flow statements closely, financial managers can gain valuable insight into the company's finances and use it to create more effective cash flow forecasting and cost management plans in the future.

At XLReporting, we believe that the key to effective cash flow analysis lies in the ability to merge current financial data with future projections, painting a complete picture of your company's financial health.

With XLReporting, this consolidation is seamless and effortless, allowing you to focus solely on forecasting and anticipating future numbers, which are displayed in a comprehensive cash flow forecast report.

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