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Cash flow provides a real picture of what is happening to cash in your company. Unlike accounting profit, it shows whether funds are available for current payments, investments and financing obligations. A company often reports profit yet has no money in its account: that is why cash flows are a key element of financial analysis.
Who prepares a cash flow statement?
A cash flow statement forms part of the financial statements of entities subject to mandatory audit of annual statements (Article 64 of the Accounting Act). Besides banks, insurers, joint-stock companies and regulated entities, the obligation covers “other entities” meeting at least two of three conditions in the previous year. For 2024 statements, the thresholds are at least 50 full-time equivalent employees, assets ≥ EUR 2,500,000 and net revenue (including products, goods and financial operations) ≥ EUR 5,000,000. For 2025 statements, two thresholds were updated: assets ≥ EUR 3,125,000 and net revenue from sales of goods and products ≥ EUR 6,250,000; the employment threshold of 50 remains unchanged. If you are not subject to audit, you can prepare the statement voluntarily, which is good management practice anyway.
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How to calculate cash flow – the logic of the indirect method
Reporting uses two methods: direct and indirect. In Poland, the indirect method is most common. It starts with net profit or loss, then adjusts for non-cash items and working capital changes to obtain operating cash flows. Investing and financing activities are then added, and consistency with cash balances is checked.
Remember that the statement has three sections:Operating (core activities, such as customer receipts, salary payments and supplier payments), investing (purchases and sales of fixed assets, real estate and financial assets, dividend and long-term interest receipts), and financing (loans, borrowings, share issues, debt redemption, dividends, lease principal instalments and interest).
The simplified “cash” formula is:
Cash flow = Opening balance + Receipts − Payments
For example, if you have PLN 30,000 at the start of the month, receive PLN 200,000 and pay PLN 150,000, the closing balance is PLN 80,000 and cash flow for the period is +PLN 50,000. The indirect-method statement reaches the same result from the accounting perspective:
Start with net result (A.I)
Add or subtract adjustments (A.II), including depreciation (non-cash, so added), investing activity results (excluded from operating activities), exchange differences and changes in inventory, receivables and liabilities, which determine how much cash actually remains.
A.I ± A.II gives A.III – operating cash flows
Then show B – investing cash flows, with receipts and payments separately
C – financing cash flows, also receipts and payments
Adding A, B and C gives D – total net cash flows, which, after accounting for E – the balance-sheet change in cash, must reconcile with F – opening cash and G – closing cash. F + D (± E) = G is a simple accuracy check.
What to watch for when completing it (common misunderstandings)
Most errors concern classification between A, B and C. Operating activities exclude receipts and payments relating to investing or financing. In investing activities, remember that interest on short-term deposits under three months is usually treated as operating, while longer-term interest is investing. In financing, split lease instalments: show the principal as a financing payment and interest under “interest” in the same section. Apply similar logic to loans and borrowings, separating principal and interest costs. Also watch advances: refunds of investment advances should not slip into operating activities. Exchange differences adjust the operating net result, but actual foreign-currency receipts and payments belong in the appropriate sections according to their nature.
The CFO's role in cash flow management
Calculating simple flows is one thing, but analysis and forecasting require experience. Support from a chief financial officer is crucial here. This expert translates numbers into strategy and real actions, creates a liquidity management plan, implements real-time monitoring tools, anticipates risks and develops contingency scenarios. The owner gains confidence that cash is under control. More SMEs outsource the CFO role to access expertise without adding a full-time position to their organisational structure.
How to interpret the result and what it means for management
Positive operating cash flows mean core activities generate cash, a healthy sign. Negative operating flows alongside high investment may be acceptable during rapid growth, but require a financing plan. Persistently negative operating cash flow is an alarm signal: receivables are collected too slowly, liabilities paid too quickly, or the business model's margins are too low. Structural analysis (A versus B versus C) explains why cash increases or decreases and where decisions are needed: customer credit policy, investment schedules or financing structure.
How to improve cash flow in practice (without an “Excel puzzle”)
The foundation is working capital: faster receivables collection, reasonable negotiated supplier payment terms and realistic inventory levels. The second pillar is scheduling investment expenditure in line with seasonal receipts. Third is deliberate financing management, using working capital loans, factoring and revolving credit lines to smooth rather than deepen cash fluctuations. Finally, regular cash-flow forecasts: a base plan, conservative scenario and growth scenario, so cash gaps can be identified and filled in advance.
If you found this article interesting, explore our external chief financial officer services and read how we can help you:
Summary
Cash flow is not “another attachment to the financial statements” but a compass for liquidity and risk management. Prepared using the indirect method, it shows where cash really comes from and where it goes. Management can respond in time, from receivables and inventory policies to investment and financing decisions. When analysis and forecasts are supported by a chief financial officer's practical experience, cash flow becomes a tool that not only describes the past but, above all, steers the company's future.
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