Cash Flow Statement

Cash flow statement is a financial statement that tracks the movement of cash into and out of a business or investment property over a specific period. It provides investors and property owners with a clear picture of liquidity by categorizing cash movements into operating, investing, and financing activities.

Key Components

A cash flow statement consists of three main sections:

• Cash Flow from Operating Activities: Cash generated from core business operations, including rental income, property management fees, and day-to-day expenses
• Cash Flow from Investing Activities: Cash used for or generated from asset purchases, property acquisitions, renovations, and capital expenditures
• Cash Flow from Financing Activities: Cash movement from loans, mortgage payments, equity injections, and investor distributions

For Philippine real estate investors, additional components include:

• Rental income from condominium units or residential properties
• Association dues and real property tax (amilyar) payments
• Mortgage amortization for bank-financed properties
• Withholding tax deductions on rental income

How it Works

1. Gather Financial Data: Collect all income sources (rent, parking fees) and expenses (maintenance, taxes, insurance) for the reporting period
2. Calculate Net Cash from Operations: Subtract operating expenses from gross rental income
3. Account for Investments: Record cash spent on property improvements or received from asset sales
4. Include Financing Activities: Add loan proceeds or subtract mortgage and principal payments
5. Determine Net Cash Flow: Sum all three categories to arrive at the total cash position

In the Philippines, you can prepare cash flow statements using either the direct method (listing actual cash receipts and payments) or the indirect method (starting with net income and adjusting for non-cash items).

Pros & Cons

Pros:

• Shows actual liquidity position unlike the income statement which includes non-cash items
• Helps identify potential cash shortages before they become critical
• Essential for securing financing from Philippine banks
• Required for BIR annual financial statement submissions

Cons:

• Does not reflect property appreciation or unrealized gains
• Can be manipulated through timing of payments and collections
• Requires consistent tracking and accurate record-keeping
• Does not account for depreciation which affects tax liability

Real-World Application

In Philippine real estate investing, cash flow statements help property owners and investors project expected monthly and annual returns after accounting for all expenses. iRealtee uses the Cash Flow Statement feature to provide investors with automated financial projections that show:

• Monthly net operating income from rental properties
• Annual cash-on-cash returns based on actual equity invested
• Break-even analysis considering mortgage payments and operating costs
• Tax implications including the 12% VAT on commercial leases and creditable withholding tax

For pre-selling condominium investments, the cash flow statement tracks equity payments during the construction period and projects rental income upon turnover. This helps investors determine whether a property will generate positive cash flow or require additional capital infusion.

The statement integrates with other financial statements like the balance sheet and income statement to provide a complete financial picture of your real estate portfolio.

Related Terms

• Accounting Period - The time frame covered by the cash flow statement
• Income Statement - Shows revenues and expenses over a period
• Balance Sheet - Snapshot of assets, liabilities, and equity at a point in time
• Financial Statement - Formal records of financial activities and position
• Accounts Receivable - Money owed to you from tenants or buyers
• Net Operating Income - Property income after operating expenses but before financing costs

References

• Cash Flow Statement - Wikipedia
• Cash Flow Statement: How to Read and Understand It - Investopedia
• Understanding Cash Flow for Rental Properties in the Philippines - Vista Residences
• Annual Financial Report - Bureau of Internal Revenue