Cash Flow Analysis

How do you analyse cash flow?

Cash Flow Analysis analyses the 3 types of cash flow statements that show, over a specific period of time, how much cash is coming in and going out of the business. The analysis is helpful to determine the liquidity and solvency of the business.


The 3 types of cash flow are from:

Operating activities

Cash received from customers minus amount spent on operating expenses

Investing activities

Funds spent on fixed assets, long term investments including purchase of stock and property.

Financing activities

Funding that comes from Investors, creditors, or owners.


Why is Cash Flow Analysis important?

From the generation and analysis of these cash statements a business can determine its working capital and observe the inflow and outflow of cash enabling better management of cash in the future.

The analysis of the actual cash basis of the accounts can provide information to determine whether your business has the cash available to remain solvent as well as the ability to meet any future requirements for capital and growth.

Regularly analysing cash flow will also make sure you are aware when you are running short of cash which will enable adjustments to be made. If analysis shows a surplus of cash, decisions can be made about whether to invest or save for a future period when cash flow may be less.

What to do with the information from a Cash Flow analysis?

Regular analysis of cash flow will show up patterns that could be very useful for making future business decisions.

There may be periods of the year or month when cash flow alters creating problems meeting operating costs so appropriate analysis of cash flow will allow changes to be put in place. Bills could be paid at times of the month when cash is available in the business, staff could be employed to fit in with the busier more lucrative periods, prices could be changed to improve cash flow.

The information from the analysis of cash flow if acted upon enables a company to have a better grip on its situation, the ability to pay its operating costs is crucial to ensure a company stays in business.


What to look for during a cash flow analysis

1. Look for positive cash flow

The mark of a company’s ability to remain solvent is to spot when its operating income exceeds its net income, this is an indication that a company has a healthy cash flow which enables it to make good financial decisions for the business.

2. Be wary about a positive cash flow

A positive cash flow should be analysed further to see where the cash is coming from. If the main source of cash is from investing activities and the operating cash flow is negative this may be an indication that the situation is not sustainable. Borrowing to sustain operating expenses may not be the best decision.

3. Analyse your negative cash flow

If you notice a negative cash flow, further analysis is required, it’s not always indicative of a problem. Why is it negative? Is it from the purchase of new machinery and useful investments that will enable the company to be more profitable in the future? If the operating cash flow is positive and investing negative then maybe the company is making lots of money and then using it to help it grow in the future.

4. Calculate your free cash flow

Free cash flow, left over after you pay for operating and capital expenditures, enables a company to invest and grow. This is an important figure to calculate.

5. Calculate the operating cash flow margin

Cash from operating activities calculated as a percentage of sales revenue in a particular period will give a positive or a negative figure. A positive margin gives a measure of a company’s profitability, efficiency and future earning potential.


Have you thought about Invoice Finance as a cash flow solution for your business?

Invoice finance allows you to release cash quickly from your unpaid invoices.

As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.

We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our Confidential Invoice Discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.


Get in touch

Contact our friendly UK advisors on our freephone

0808 250 0859

8:45 - 17:15 - Monday to Thursday &
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The benefits of invoice finance companies such as Novuna Business cash flow

  • Boost your cash flow without having to wait up to 120 days for your customers to pay you

  • Release up to 90% of the invoice straight away, and the final 10% when the invoice is settled

  • Access funds within 24 hours from initial appointment with our revolutionary digital onboarding process

  • Benefit from our in-house credit control processes, allowing you to focus on running your business, instead of chasing clients for payment

  • 6 month trial period followed by a rolling contract


Want to understand more Cash Flow Finance terms?

Our Cash Flow Resource Hub has been set up to help SME's with cash flow finance advice, tips and resources to help with their cash flow position.

We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.



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If your customers are consumers, please contact our consumer finance division.

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