How do you present cash flow performance to investors and stakeholders?

1 Choose the right cash flow metrics

Depending on your business model, industry, and objectives, you may want to use different cash flow metrics to evaluate and showcase your performance. Operating cash flow (OCF) reflects your ability to generate cash from operations without external funding, while free cash flow (FCF) reflects your ability to generate cash from operations and invest in growth opportunities. Cash flow from investing activities (CFI) measures the amount of cash spent or received from buying or selling long-term assets, while cash flow from financing activities (CFF) measures the amount of cash spent or received from borrowing or repaying debt. You should choose the cash flow metrics that best align with your business strategy, value proposition, and growth potential. For example, if you are a start-up or a high-growth company, you may want to focus on FCF to show how much cash you can reinvest in your business or attract new investors. Conversely, if you are a mature or stable company, you may want to focus on OCF to show how much cash you can generate from existing operations or pay dividends to investors and stakeholders.

2 Create clear and concise cash flow statements

A cash flow statement is a financial statement that summarizes the sources and uses of cash for a specific period, usually a quarter or a year. It is divided into three sections: OCF, CFI, and CFF. A cash flow statement helps you track the changes in your cash balance and explain the reasons behind them. To create a clear and concise cash flow statement, you should start with your net income, adjust for non-cash items, add or subtract cash flows from investing activities, add or subtract cash flows from financing activities, add up your OCF, CFI, and CFF to get your net change in cash for the period, and add your net change in cash to your beginning cash balance to get your ending cash balance. You should present your cash flow statement in a simple and consistent format, using positive or negative signs to indicate the direction of the cash flows. Additionally, you should provide an explanation for each line item, highlighting the main factors that affected your cash flows. For instance, higher sales and lower operating expenses could increase OCF by $10 million while the purchase of a new plant and equipment could decrease CFI by $5 million.

3 Communicate the main drivers and implications of your cash flow performance

Once you have created your cash flow statement, you should communicate the main drivers and implications of your cash flow performance to your investors and stakeholders. Use clear and concise language, charts, and graphs to illustrate your points and make comparisons with previous periods, budgets, forecasts, or industry benchmarks. Additionally, address any questions, concerns, or feedback that your investors and stakeholders may have.

You should explain how your cash flow performance reflects your business strategy, value proposition, and growth potential; how it affects your financial position, liquidity, solvency, and profitability; how it influences your investment decisions, capital structure, and dividend policy; and how it compares with expectations, goals, and targets. By doing so, you can demonstrate financial acumen, transparency, and accountability. This will help build trust with investors and stakeholders and persuade them to support your business vision.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?