By virtue of what we set at the Capital Match Point, we get the opportunity to work with entrepreneurs seeking capital at the very early stages of that process . And one of the first things we do, almost as a vetting process, is to make sure that the business seeking capital has a coherent set of financial statements because, let's face it, at the end of the day, that is a prerequisite for getting funded.
Let us take a minute to talk about one of the important components of those statements, the statement of cash flows. The statements of cash flows is a summary of the receipts of cash for a company during a given period of time less the disbursements of cash that that company has during a given period of time. It gives our investors some real insight, especially for early-stager start-up companies, as to the level of cash coming into the company and the company's ability to support itself in the early stages of growth.
The statement of cash flows is broken into three areas: the cash generated or consumed by operations, the cash generated or consumed by investing activities, and the cash generated or consumed by financing activities. Let us take the cash generated or consumed by operating activities portion. What this does is this takes the net income number that your company generates and converts that to a cash number. For instance, if your company sells on credit, it sold a product to a customer on 30 days terms. While you recorded that as revenue on the income statement, you did not actually receive or probably did not receive that cash into the company during the period for which you are compiling the statement of cash flows. So, you would take that away. Also on the income statement, there are non-cash charges such as amortization or depreciation. Because those do not represent actual cash flows out of the company, you add those back to the income statement and make other adjustments like this to arrive at a cash generated or consumed by operating activities figure for your company.
Then you have the cash used for investing. This is like if you use cash to buy something like equipment or if you use cash to take an equity position in a subsidiary or something like that. This would be the case of cash used for investing activities. On the other hand, if you sold some equipment or sold some securities in a subsidiary, this would be an example of cash generated by investing activities.
Then you have cash consumed or generated by financing activities. This might be payment of dividends. That would be a dispersant of cash for financing activities. Buying back some stock would be a dispersant of cash for financing activities. Sale of some treasury stock would be a receipt of cash for financing activities. So, the way the investors are going to use this is to get a complete picture of the cash you have coming into or going out of the company. They are going to see how much operations you are generating, they are going to see how much cash you are really using to invest, and they are going to see how much cash you are using to finance your company.
What I always tell an entrepreneur is if they have some questions regarding the statements of cash flow, is to give us a call because, ultimately, what we want to do is make sure they have accurate financials so that they can maximize their opportunity of getting funded.

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