Understanding a company's performance

Here are 4 essential reasons to rely on the cash flow statement:

1- Measuring liquidity:

Unlike net profit, which is based on accounting figures, the cash flow statement focuses on actual movements of money. It allows the capacity of a company to generate and retain cash to be assessed. A company may show a high net profit, but if it does not generate enough positive cash flow, it could encounter liquidity difficulties in the long term.

2- Working capital management:

The cash flow statement highlights the changes in a company's working capital, that is the difference between short-term assets and short-term liabilities. Effective working capital management is crucial for maintaining daily operations, such as paying suppliers, managing inventory and collecting trade receivables. The cash flow statement makes it possible to identify potential working capital problems and to adjust strategies accordingly.

3- Assessing investments:

When a company considers investing in new projects or acquiring assets, the cash flow statement provides visibility on future cash flows. It makes it possible to assess whether the investments are likely to generate a positive return on investment and whether they are financially viable in the long term. A company may have a high net profit, but if its future cash flows are uncertain, this could indicate a financial risk.

4- Analysing the capital structure:

The cash flow statement also reveals financing activities, such as the issuance of shares, loans or the repayment of borrowings. This makes it possible to assess the stability of the company's capital structure and its capacity to manage its financial obligations in the short and long term.

In summary, relying solely on a company's net profit can give an incomplete view of its financial health. The cash flow statement offers a more holistic perspective by focusing on actual cash flows and by allowing a more precise assessment of liquidity, working capital management, investments and capital structure. By taking this information into account, investors, managers and stakeholders can make more informed decisions and better understand the true financial performance of a company.

Also read: Ziegler bankruptcy: three signals that every leader must read, the 2026 case study: how the balance sheet structure, the adjusted EBITDA and the cash flow map signalled the failure in public accounts.