Cash Flow Analysis for Mid-Sized Companies
A cash flow analysis shows how cash-effective incoming and outgoing payments develop in a company and how this affects liquidity, financing capacity and decisions. As the name suggests, cash flow is analysed in order to make patterns, behaviours and the effects of investment decisions visible. Cash flow analyses also serve as a KPI and as a way to measure the ROI of investments.
What Is a Cash Flow Analysis?
A cash flow analysis examines a company’s cash inflows and outflows over a specific period. It shows whether the business is generating or consuming cash.
What Is Cash Flow, Simply Explained?
Cash flow shows how much money flows through a company within a certain period. Positive cash flow means that more cash comes in than goes out. Negative cash flow means that more money is spent than received.
For CFOs, cash flow is very important, as the saying “Cash is King” suggests. It provides deep insight into the company’s liquidity. This means how capable the company is of paying short-term liabilities with liquid funds and keeping operating business running. CFOs know that it is a priority to maintain good, positive cash flow in order to avoid liquidity bottlenecks and potential crises.
How Do You Do a Cash Flow Analysis?
A precise cash flow analysis includes several steps:
1. Define the Analysis Period and Objective
First, it makes sense to define the period of the analysis. For mid-sized companies, it is often useful to carry out analyses per month, quarter or year. Depending on the business model, rolling forecasts can also be very useful.
The purpose of a cash flow analysis is to understand the company’s liquidity, creditworthiness or investment capacity. This is important because management needs to know whether sufficient working capital is available and how high the financing requirement is.
Rolling cash flow analyses provide a continuous overview of the company’s cash flow and updates data regularly. With modern software solutions, this can happen automatically. No manual data entry and time-consuming analysis.
The platform updates data automatically and refreshes analyses, ensuring they always reflect the latest financial information. This enables CFOs and finance teams to make decisions based on up-to-date insights while reducing the risk of errors caused by manual data consolidation.
2. Collect Cash-Effective Data
Next, all cash-effective data must be collected. This means actual movements of money, not only profit and loss changes. This includes:
bank accounts
open receivables
liabilities
salary and tax payments
This often involves the reconciliation and coordination of ERP data, accounting and payment plans. Mid-sized companies can reduce manual effort and speed up the process here in their cash management through automation.
With Treasury Management Software, all this data can be centralised in one platform through bank connections and ERP integrations.
3. Calculate and Interpret Cash Flow
In the next step, the actual cash flow is determined. Outgoing payments are subtracted from incoming payments. The cash flow is then analysed and interpreted depending on the type of cash flow.
Cash flow = incoming payments - outgoing payments
4. Derive Measures From the Analysis
Once all cash flow data has been analysed and interpreted, one of the most important steps follows. Measures must now be derived from the presented data, which should lead to successful results and improvements.
Here, it is especially important that decision-makers are familiar with liquidity planning and can interpret liquidity ratios correctly. Decisions can be made based on the cash flow analysis that bring growth to the company.
Calculating Cash Flow: Direct and Indirect Method
There are different methods for calculating cash flow. The two common methods are the direct method and the indirect method.
Direct Method of Cash Flow Calculation
In the direct method, the cash flow formula is:
Cash flow = cash-effective incoming payments - cash-effective outgoing payments
Cash flow calculations focus exclusively on transactions that involve actual cash movements.
Indirect Method of Cash Flow Calculation
With the indirect method, the cash flow formula is, simplified:
Cash flow = net income + non-cash expenses - non-cash income
The cash flow calculation starts with net income and adds non-cash expenses and subtracts non-cash income.
What Are the Three Types of Cash Flow?
In cash management, there are three main types of cash flows:
Operating Cash Flow
Operating cash flow reflects cash generated or used by a company's core business activities. It includes:
customer revenue
material costs
personnel costs
ongoing operating costs
It is important because it shows whether the core business generates liquid funds. A positive operating cash flow means that a company is liquid from its own resources.
Cash Flow From Investing Activities
Cash flow from investing activities consists of the purchase or sale of fixed assets. For example:
machines
real estate
IT systems
investments in companies
A negative investment cash flow is not automatically bad if it results from growth-oriented investments. It should therefore not only be interpreted as a reporting-date figure.
Cash Flow From Financing Activities
Cash flow from financing activities shows whether liquidity comes from operational strength or external financing. It includes:
loans
repayments
interest
equity
dividends
distributions
It provides insight into a company’s financing structure.
What Is a Good Cash Flow Value?
A good cash flow value cannot be defined in general terms. Every company, business model and industry has different liquidity needs.
In addition, every company has a different level of capital tied up depending on company size, investment phase and financing situation.
What matters is not the comparison with other companies, but internal comparison with previous periods. This enables companies to evaluate whether implemented measures have been successful and identify areas for further improvement.
Is Cash Flow More Important Than Profit?
Cash flow and profit answer different financial questions within a company. Profit reflects financial performance and describes how successfully a company operates economically.
Cash flow, on the other hand, shows actual liquidity. It shows how much cash is generated by business activities and how much is available to cover ongoing payments and financial obligations.
For liquidity, financing needs and short-term stability, cash flow is often the more decisive indicator. Profit provides greater insight into profitability and long-term earning potential.
Cash Flow Analysis Example for Mid-Sized Companies
A mid-sized company with around 150 employees summarises its cash flow statement for the previous quarter as follows:
Cash flow area | Amount |
Operating cash flow | +€420,000 |
Cash flow from investing activities | -€280,000 |
Cash flow from financing activities | -€90,000 |
Net cash flow | +€50,000 |
This cash flow analysis shows that the company generates sufficient liquidity from its core business to fund investments and meet financial obligations.
The negative cash flow from investing activities reflects targeted growth investments, while the negative financing cash flow results from ongoing debt repayments. Since the overall net cash flow remains positive, the company’s short-term liquidity position is stable.
For mid-sized companies, this analysis leads to concrete actions: continue monitoring investment activities, regularly compare repayment schedules with operating cash flow and assess early whether additional financing facilities are needed to manage seasonal fluctuations.
This transforms a one-time cash flow calculation into a continuous basis for financial management and decision-making.
Why Manual Cash Flow Analyses Reach Their Limits in Mid-Sized Companies
Many mid-sized companies still rely on numerous manual processes.
Bank data is exported manually
ERP data is not updated daily
Several accounts and entities make consolidation more difficult
Excel files are prone to errors
Plan versus actual deviations are recognised too late
Management reporting is too time consuming
Scenario analyses are difficult to scale when performed manually
Cash flow, liquidity planning, and payment transactions are not centrally connected
Cash flow analyses from Excel and ERP reports are not only more prone to errors, but can also quickly become inefficient as mid-sized companies grow. Liquidity planning software helps reduce manual effort and improves efficiency.
Automating Cash Flow Analysis With Financial Navigator
Financial Navigator is a modern platform for liquidity planning, cash management and treasury management. As a specialised cash flow analysis software, it consolidates data from banks and ERP systems and provides real-time visibility into a company’s liquidity position.
Financial Navigator offers more than 13,000 bank connections in more than 30 countries. It also achieves cash transparency of more than 98% for customers and has already saved more than 10,000 hours in financial administration.
Central View of Cash Flows and Liquidity
Bank accounts, payment flows, cash positions and liquidity development are consolidated in one system. Through bank connections, a clear cash flow dashboard can be created to support cash management.
Automated Data Basis Instead of Manual Excel Processes
Through bank connections and ERP integrations, data is updated automatically and no longer has to be maintained manually. This increases timeliness, efficiency, data quality and improves traceability.
Connecting Cash Flow Analysis, Forecasting and Scenarios
It links historical cash flow analyses with future liquidity planning and scenario analyses.
Reporting for CFOs, Finance Managers and Controlling
Dashboards, plan-actual comparisons, liquidity ratios and management reports are created automatically and can be shared easily. This increases transparency in decision-making and reduces reporting effort.
Who Is Digital Cash Flow Analysis Suitable For?
Financial Navigator’s cash flow analysis functions are suitable for many different roles and groups.
CFOs
CFOs use cash flow analyses as a strategic decision-making basis to assess financial stability. Through automated reporting and dashboards, CFOs gain an overview of:
investment flexibility
financing
risks
creditworthiness
management reporting
Finance Managers
For finance managers, operational cash flow monitoring is extremely important. They need up to date bank data, payment flows, liquidity status and automated reports. Financial Navigator reduces effort and increases transparency.
Controlling Teams
Controlling teams need plan versus actual deviations, interpretation of key figures and budget and forecast reconciliation. Financial Navigator ensures higher data quality and connects cash flow analyses with controlling processes.
Management in Mid-Sized Companies
Management in mid-sized companies benefits from a fast, accurate overview of solvency. Growth flexibility becomes visible faster and financial resilience can be assessed better.
FAQ: Cash Flow Analysis
What is a cash flow analysis?
A cash flow analysis examines all cash-effective incoming and outgoing payments of a company over a specific period. It makes visible whether a company is liquid and financially stable.
How do you do a cash flow analysis in a company?
A cash flow analysis follows a clear process:
define period
collect data
structure and calculate cash flows
interpret and derive measures
What is cash flow, simply explained?
Cash flow describes the actual flow of money in a company, meaning how much money flows in and out again. Unlike accounting profit, it does not include non-cash items such as depreciation.
What are the three types of cash flow?
There are three central cash flows:
operating cash flow
cash flow from investing activities
cash flow from financing activities
Together, they make up a company’s net cash flow.
What are the three phases of cash flow?
Cash flow includes the same three phases as the cash flow statement:
operating activities
investing activities
financing activities
What is a good cash flow value?
A general benchmark for a good cash flow value cannot be defined. However important indicators are stable, positive operating cash flow and sufficient free cash flow. Small deviations between planned and actual cash flow can also indicate a healthy cash flow situation.
Is cash flow more important than profit?
Cash flow and profit cannot be compared directly because they answer different questions. Cash flow shows a company’s actual liquidity, while profit shows its earnings performance.
How does Financial Navigator help with cash flow analysis?
Financial Navigator automates cash flow analysis and centralises management in one platform:
bank and ERP integration
cash flow dashboards
automated reports
liquidity planning and scenarios
Digitalise Cash Flow Analysis Now
An sound cash flow analysis shows mid-sized companies how stable their liquidity really is and where potential risks may arise. when cash flows are created manually from Excel or ERP reports, valuable time is lost and decisions may be based on outdated information. This can be challenging for mid-sized companies with several bank accounts and entities which require a central and up-to-date data basis.
With Financial Navigator, bank account data and ERP information are automatically consolidated enabling CFOs, finance managers and controlling teams can access current cash flow dashboards at any time. Liquidity risks can be identified earlier, decisions can be made on a more reliable basis, and manual reporting efforts are significantly reduced.
Financial Navigator connects cash flow analysis directly with forecasting, scenarios and active management in one central system. This turns a one-off key figure into a continuous management tool for mid-sized companies.