cash flow statement
Cash Flow Statement is the report that shows how money actually moved in and out of a business, not how much profit it claimed on paper.
In plain English
"But the company said they made ₦20 million profit this year, so why can't they pay my invoice?" Adaeze asked her brother, who works in banking.
"Because profit and cash are not the same thing," he said. "Profit is what accounting says you earned. Cash is what is actually sitting in the account. That is why every serious company produces a cash flow statement alongside its profit figures."
A cash flow statement tracks real money moving through a business in three lanes. Operating activities show cash from the main business, selling rice, providing services, collecting payments. Investing activities show cash spent on or earned from things like machinery, property or shares. Financing activities show cash from loans, share sales, or dividends paid out.
A business can look profitable on its income statement yet still struggle to pay salaries, because customers have not paid their invoices, or because money is tied up in stock sitting in a warehouse in Apapa. The cash flow statement catches that gap immediately.
For someone sending money home from London, this matters too. If a relative's business in Lagos shows nice profit figures but keeps asking for emergency cash, the cash flow statement is the document that would explain why, showing whether the trouble is slow paying customers, heavy borrowing, or spending too fast on expansion.
A Lagos fashion brand reports ₦15 million profit for the year, but its cash flow statement shows operating cash flow of negative ₦3 million, because customers owe them ₦18 million in unpaid invoices. The profit is real on paper, but the cash to pay staff and suppliers is not there yet.
Questions people ask
Why can a company be profitable but still run out of cash?
Profit includes sales made on credit that have not been paid yet, plus non cash items like depreciation. Cash flow only counts money that has physically moved, so a business can show profit on paper while its bank account is nearly empty.
What are the three sections of a cash flow statement?
Operating activities cover day to day trading, investing activities cover buying or selling long term assets, and financing activities cover loans, share issues, and dividends. Together they explain every reason cash went up or down.
Is a cash flow statement more important than a profit and loss statement?
Neither replaces the other. The profit and loss statement shows whether the business model works, while the cash flow statement shows whether the business can survive. A wise investor or lender always asks to see both.
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