Email: contactus@precisa.in
Phone number: +91 98450 76647
  • Solutions
    • DSA Service
    • Forensic Investigation
    • Bank Statement Analysis
    • GSTR Analysis
    • Credit Report Analysis
    • Account Aggregator Integration
    • Anti-Money Laundering (AML) Analysis
  • APIs
  • Clients
  • About
  • Blog
  • Pricing
  • Sign In
Try Now
Bank Statement Analysis

Microscopic View of a Bank Cash Flow Statement Analysis

January 13, 2024 precisateam No comments yet
cash flow statement analysis

For those new to financial analysis, distinguishing between cash flow statements and income statements can be challenging. While they may appear similar at first glance, these are distinct financial documents, each providing unique and essential insights into a company’s financial status.

A cash flow statement, in conjunction with a company’s balance sheet and income statement, offers critical financial information investors, financial analysts, and decision-makers require to evaluate a company. In contemporary lending business, bank cash flow statement analysis emerges as a meaningful process that determines how much cash is entering and leaving a business.

In this blog post, we dig deeper into understanding the crucial details about statement analysis and its key elements.

What is a Bank Cash Flow Statement? 

A bank cash flow statement is a financial document that records a company’s cash inflow and outflow for a specific period. It is a fair reflection of a company’s ability to make purchases,  pay bills, and how much cash it has in hand.

While a company’s income statement also offers important insights, it does not offer clarity into how much cash it has, its expenses, and its overall financial stability.

As mentioned earlier, while a bank statement isn’t the sole document that influences investors’ and lenders’ decisions, bank cash flow statements, combined with income statements and balance sheets, become an invaluable tool to determine a company’s financial stability and health.

Understanding Cash Flow Statement Analysis

Cash flow statement analysis stands for the process of calculating the amount of cash that has entered or left a business during the stipulated accounting period.

This is generally divided into three components, including cash flow from operations, cash flow from investments, and cash flow from financial activities.

Businesses rely upon these three statements to determine how much cash and where it is coming in or going out from. Companies can then take a call on whether their cash flow is in the right direction and aligned with their objectives.

Components of Cash Flow Statement Analysis

Let us take a look at the three important components of a cash flow statement that indicate the different ways cash can enter or leave the business.

1. Cash Flow from Operations

Cash generated from operations is the primary way of earning or spending money for most businesses. In short, by selling their products and services.

2. Cash Flow from Investments

As the name suggests, cash flow from investments refers to cash earned or spent on investments, including expanding your office, upgrading equipment, acquiring a company, etc.

3. Cash Flow from Financial Activities

Cash flow from financial activities indicates the cash earned or spent by a company to finance itself either via loans, owner’s equity, and more.

Cash Flow Statement Analysis Techniques

Now, let us dive deeper into understanding how businesses determine their cash flow.  Most businesses either deploy the direct or indirect method to calculate how much cash they have and can work with.

Direct Method

The direct method only takes all the cash transactions into account, excluding all non-cash expenses, including amortisation and depreciation.

Indirect Method

The indirect method takes all the changes and adjustments to assets and liabilities into account, along with changes in cash flow due to adjustments made with cash expenses. Despite being more time-consuming and less accurate, the indirect method is preferred over the direct method as it includes all adjustments.

Analysing Cash Flow Statements: Key Components

Analyse cash flow statement analysis

Cash flow statements are the missing pieces of the puzzle between a balance sheet and an income statement that provide a comprehensive view of a company’s financial health. Companies also use it to ensure their receivables are converted to cash at the earliest.

It is worth noting that although a company may have a positive or a negative cash flow, one should only judge its financial health after going through other financial statements.

Here are the key aspects you must know before conducting an accurate cash flow statement analysis:

1. Debt Service Coverage Ratio

The measure of a company’s ability to pay off short-term liabilities is known as the debt service coverage ratio. However, it is also important to understand that just because a business has ample liquid assets, it does not necessarily indicate that it is thriving. For example, a company may currently have a lot of cash at its disposal due to mortgaging its future growth by selling long-term assets or incurring debt.

This is how the debt service coverage ratio is calculated:

DSCR = Net Operating Income/Debt Services

2. Free Cash Flow

Free cash flow determines a business’s true profitability and is an important observation that can be drawn from a cash flow statement analysis. It is one of the most important financial metrics as it gives an accurate idea of a business’s total cash on hand for use.

3. Unlevered Cash Flow

The unlevered cash flow, also known as a free cash flow to the firm (FCFF), highlights the amount of cash available to the business before considering interests and other types of financial obligations. The difference between levered and unleveled cash flow provides a clear understanding of whether a business is not exceeding certain debt levels.

Wrapping Up

Despite its drawbacks, cash flow statements offer significant clarity into a company’s financial stability and cash position. Investors, stakeholders, and financial analysts will refrain from making major decisions about a business without going through their cash flow statements.

Additionally, all the major decision-makers should go through their cash flow statements to ensure their business is on the right track financially and also mitigate risks in a timely and streamlined manner.

Precisa offers a web-based bank statement analyser that allows businesses to detect anomalies, track transactional activities and trends, and identify patterns to make informed financial decisions.

Book a free trial today to learn more.

  • Bank Financial Statement Analysis

Post navigation

Previous
Next

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Search

Categories

  • Bank Statement Analysis (120)
  • Credit Appraisal (34)
  • Digital Lending (119)
  • Fintech (81)
  • NBFC Software (3)
  • Uncategorized (1)
  • Understanding Precisa (17)

Recent posts

  • The͏ C͏re͏dit Bur͏e͏͏a͏u͏ & Bank Stateme͏͏nt Co͏͏mbi͏nation
    Credit Bureau & Bank Stateme͏͏nt: Ho͏w the Duo Reduc͏es Lending ͏͏R͏isk
  • RBI's Decision to Exclude Fintech Loans
    Understanding RBI’s Decision to Exclude Fintech-Sourced Loans from Default Coverage
  • Extract Hidden Insights from Consumer Credit Bureau Reports
    Beyond CIBIL Scores: Pulling Hidden Insights from Consumer Credit Bureau Report

Tags

account aggreagtor AI in Fintech API To Get Bank Transactions Automated Bank Statement Analysis BaaS Bank Bank Accounts Bank Financial Statement Analysis Bank Statement Analysis Bank Statement Analysis API Bank Statement Analysis Tools bnpl Case Study cash flow analysis co-lending Credit Appraisal Credit Appraisal Software Tools Data Quality and Integrity digital lending due Due Diligence embedded finance Financial Data Analysis Tools financial inclusion Financial Industry financial security financial startups Financial Statement Analysis Software fintech fintech companies fintech startups Fraud Investigation green finance GST GSTR gstr analyzer Lenders loan management system Loan Rates money laundering MSME nbfc open banking precisa rbi

Continue reading

Short-term vs Long-term Cash Flow Analysis
Digital Lending

Addressing the Short-term vs Long-term Cash Flow Analysis Dilemma

June 13, 2025 precisateam No comments yet

Delinquencies in India increased by 44% among personal loan borrowers between Dec ’23 and June ’24. This highlights the importance of accurate and informed decision-making during loan approvals and, more importantly, the need to rethink how lenders approach cash flow analysis of individual and commercial borrowers. Although conventional lenders in India, including banks, typically rely […]

Alternative Credit Scoring Using Bank Statement Analysis
Bank Statement Analysis, Uncategorized

The Art and Science of Alternative Credit Scoring Using Bank Statement Analysis

June 4, 2025 precisateam No comments yet

Why is alternative credit scoring gaining momentum in India? Before exploring the reasons, let’s take a quick look at the context. Lenders disbursed over 383 million loans in FY 23-24 alone. Even though the financial market has shown this phenomenal growth, more than 160 million Indians remain “credit invisible”. In fact, 22% of Indian adults […]

Paper vs. Digital Bank Statements for Loan Approval: What Lenders Need to Know
Bank Statement Analysis

Paper vs. Digital Bank Statements for Loan Approval: What Lenders Need to Know

November 30, 2024 precisateam No comments yet

Evaluating an applicant’s creditworthiness is essential in the loan approval process. Analysing bank statements for loan approval offers lenders a comprehensive view of the applicant’s credit health. Lenders have traditionally relied on paper statements for credit health assessment. However, as lending institutions continue to digitise and automate their operations, many now offer the option of […]

Mumbai

403, Mayuresh Chambers, 4th Floor, Sector 11, CBD Belapur, Navi Mumbai, Maharashtra 400614

https://g.co/kgs/buJcESj
Pune

Rachana Park, 3rd Floor,Atreya Society,
Off. Senapati Bapat Marg,Wadarvadi, Pune,
Maharashtra – 411016

Links
  • Cancellation Policy
  • Terms Of Use
  • Privacy Policy
Subscribe to our newsletter

Sign up for our weekly newsletter to get the latest news, updates & amazing offers delivered directly in your inbox.




    © All Rights Reserved • Precisa • MADE WITH ❤️ & ⚡ IN INDIA.