Introduction
Entities have undergone changes over time, and the information needs are more demanding by users of it every day, the purpose of financial information is to be useful for decision-making that allows the user to know and evaluate to a certain organization.
Of the different financial statements that currently exist, and which are very important to know the financial structure of an entity, we will focus on one that is called: Statement of changes in the financial situation or also called cash flow statement.
We will highlight the importance of this financial document, and how useful it is in these times to control the inflow and outflow of cash, to plan and improve investments.
The importance of the statement of changes in the financial situation
The importance of this fundamental insurance financial statement must lie in how useful and necessary the information it provides us is, for the different interests of the users of financial information; such as: evaluating the entity's financial and economic behavior, its stability, and its vulnerability in meeting its objectives.
Feeling the need to know the origin and application of resources, is undoubtedly obtaining the information contained in changes in the financial situation or cash flows, since it is extremely useful to appreciate its operating, investment and financing activities.
This information is very demanding today for entities, as mentioned by Álvaro Javier Romero López.
"The growth and development of business in the current era, as well as the complexity that comes with it, have imposed the need for additional information that directly reflects the sources and origins of resources (principles of economic duality) that The entity attends as well as the application or use of said resources in the same period, or expressed in other terms, the changes that occurred in the entity's financial situation between two dates. ”
The opinion of this author makes it clear that the demand for information has increased because companies have evolved, I share the opinion since it is very true that the growth and development of business today has been more complex, it is for that we have seen in the need to have more complete information which reflects the sources, be the origin and application of the resources that a certain entity has.
Other relevant concepts that reveal the importance of the cash flow statement, as mentioned by Álvaro Javier Romero López, are the following: “the information that communicates the statement of changes in the financial situation must be useful for:
- Make investment decisions or allocate resources. Assess the solvency and liquidity of the entity. Assess the entity's ability to generate resources or income through its operating activities. Distinguish the origin and characteristics of the entity's financial resources, as well such as its performance. Knowing what financial resources the entity has to carry out its purposes; that is, how he obtained them and how he applied them.
This is one of the most relevant points that we can find or that we can lean on, when obtaining this financial statement, but nevertheless we must also highlight the importance that cash flow has had today, it serves as a support and as a tool to keep a check on cash inflows and outflows.
This financial statement also serves us in these times to have a control in the payment of taxes, as is the case of VAT and the IETU, since these obligations are managed based on cash flow, and this last tax which is the IETU (Business Tax at Unique Rate), which is currently the one that has hit companies the most, and that this financial statement can help maintain stability for its payment. But this only helps us slightly, it is important to clarify that it would only help us to know how much resources we are obtaining and where it is applied, or will be applied to balance the cash flow.
In order to be clearer about what the statement of financial position or cash flow statement is, Álvaro Javier Romero López defines it as:
“The statement of cash flow or statement of changes in financial position (origin and application of resources) is a financial statement that communicates changes in an entity's resources and sources in a given period, showing operating activities, financing and investment and its final reflection in cash.
Tom Nelson defines it as:
“The state of origin and application of funds tries to analyze the activities of a period to determine what caused the changes in the position of working capital. On some occasions they have been described as the state of "where it goes-where it went".
These opinions help us maintain a broader concept of what the cash flow statement is, but the clearest concept is the one given by Earl A. Spiller Jr. and Martin G. Gosman say:
"In general, this statement of changes reveals information about the way in which activities are financed, the way in which financial resources are used or accumulated during the period and about the way in which the liquidity position of the company is is affected. Adequate supply of cash or circulating resources is essential to ensure the smooth running of the business and to maintain its financial strength. ”
The administration is interested in knowing what changes have been made in the composition of working capital as well as its causes. A ratio of changes in working capital covers the first need, while the state of origin and fund application covers the second. This is how the same evolution of the entities made this financial statement essential in companies for decision-making and is as important and necessary as the other financial statements.
On the other hand, both for the administration of an economic entity and for the main external users of financial information (shareholders and creditors) it is important to have information to be able to evaluate two of the important aspects in the operation of a profit-making entity. which are: The profitability based on the profit figure and the liquidity, based on the one of the flow of the cash flow.
As we have already been able to identify throughout this development on the flow of changes in the financial situation, cash management is of vital importance in any business because this is the means that can determine the growth, survival or closure of a business.
But for this financial document to achieve the main objective, a careful analysis of the operations and results contained therein is required, since the decisions to be made depend on the interpretation.
Objective of the statement of changes in financial position
We have determined the importance of the cash flow statement for an entity, but it is necessary to mention its objective.
Gerardo Guajardo Cantú.
"The purpose of the statement of changes in the financial situation is to present, in a condensed and understandable way, information on the handling of cash, that is, its collection and use by the entity during a given period and, as a consequence, show a synthesis of the changes occurred in the financial situation so that the users of the financial statements can know and evaluate the liquidity or solvency of the entity. ”
"The statement of financial position is designed to explain cash movements from the normal operation of the business, the sale of non-current assets, obtaining loans, the contribution of shareholders and other transactions that include cash provisions such as purchase of non-current assets, payment of liabilities and payment of dividends. ”
We have consulted various opinions and all agree on the same thing, that the information obtained from the statement of cash flows is of vital importance to know the obtaining and use of resources that a certain entity has.
Components of cash flow
There are elements that make up the statement of cash flows as mentioned by Gerardo Guajardo Cantú.
"The resources generated or used by a company during its accounting period allow it to be divided into three main areas:
- Operation, investment, financing.
It is important to exemplify each of the elements for a better understanding:
Operating within the most important movements are:
- Cash purchases Cash sales Portfolio recovery (collection from customers) Payment to suppliers Payment of salaries Payment of various taxes Payment of various expenses
Investment:
- Loans granted to various companies. Acquisition of shares of other companies. Various permanent or long-term investments.
Financing:
- Capital repayment Interest payments Shareholder contributions Credits received Loan settlement
These are the main movements of cash in their respective areas, but in general they are all the movements in which it represents a movement of cash, which results in changes in the financial situation, and is therefore the name of this financial statement.
conclusion
The main objective of the statement of changes in the financial situation is to provide users of the financial statements, whether internal or external, with concentrated information related to a certain period, and that provides them with elements that, in addition to the other financial statements, are sufficient for decision making.
The purpose of this financial document is to present the information in a condensed and understandable way on the management of cash, it covers the origin and application of an entity's resources, or in other words, its obtaining and use of resources that have to do with cash flows.
