Cash flow statement
A cash flow statement tracks the cash moving in and out of your Malaysian small business.
Published Monday 17 August 2026
Table of contents
Key takeaways
- A cash flow statement tracks the actual cash moving in and out of your business over a set period, showing whether you can cover day-to-day costs regardless of profit on paper.
- It splits into three sections: operating activities, investing activities, and financing activities, each showing a different source or use of cash.
- Positive cash flow means more money is coming in than going out, but it does not always mean your business is profitable, and negative cash flow is not always a problem.
- Reading your cash flow statement regularly helps you spot payment delays, plan for quieter months, and make confident decisions about spending, hiring, or borrowing.
What is a cash flow statement?
A cash flow statement is a financial report that shows how much cash moves in and out of your business over a specific period. It is sometimes called a statement of cash flows.
Unlike a profit and loss statement, which includes non-cash items like depreciation, a cash flow statement focuses purely on actual money received and spent. That makes it one of the most practical tools for understanding whether your business can pay its bills, invest in growth, or repay debts.
What does a cash flow statement show?
A cash flow statement gives you a clear picture of your business's liquidity. It answers a straightforward question: where did your cash come from, and where did it go?
Specifically, it shows you:
- How much cash your core business operations generate
- Whether you are spending cash on long-term assets like equipment or property
- How you are funding the business, whether through loans, repaying debt, or owner contributions
- Your opening cash balance, the net movement across all three areas, and your closing cash balance
This helps you see whether your business is self-sustaining or relying on borrowing to stay afloat.
The 3 parts of a cash flow statement
Every cash flow statement is divided into three sections. Each one covers a different type of cash and cash equivalents movement, and together they explain how your overall cash position changed during the period.
Operating activities
This is the most important section because it shows whether your core business generates enough cash to keep running. Operating activities include cash received from customers and cash paid out for everyday costs.
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Common items in this section include:
- Cash received from sales
- Payments to suppliers
- Wages and salaries
- Tax payments, including Sales and Service Tax (SST)
- Interest paid or received
If operating cash flow is consistently positive, your business is generating enough money from its day-to-day work to cover its running costs.
Investing activities
This section records cash spent on or received from long-term assets. It covers the bigger purchases and sales that shape your business over time.
Typical investing activities include:
- Buying equipment, vehicles, or property
- Selling a business asset
- Purchasing or selling investments
Negative cash flow from investing activities is not necessarily bad. It often means you are putting money into growing your business.
Financing activities
This section covers how your business is funded. It includes cash from loans, repayments of debt, owner contributions, and any dividends paid out.
Common financing activities include:
- Taking out a business loan
- Repaying a loan or credit facility
- Owner putting money into the business
- Dividend payments
A business that regularly relies on financing activities to cover operating losses may be building up unsustainable debt.
Who uses a cash flow statement?
Cash flow statements are not just for accountants. Several groups rely on them to make decisions about your business.
- Business owners and managers use it for day-to-day planning, budgeting, and spotting cash shortfalls before they become a problem
- Investors and lenders look at your cash flow to assess whether you can repay a loan or generate a return on their investment
- Accountants and bookkeepers use it alongside your profit and loss and balance sheet to give you a full picture of financial health
Direct method vs indirect method
There are two ways to prepare the operating activities section of a cash flow statement: the direct method and the indirect method. Both arrive at the same figure for net operating cash flow, but they take different routes to get there.
The direct method lists actual cash receipts and payments. You record every cash transaction from operations individually, which gives a detailed, transparent view, though it can be time-consuming to prepare.
The indirect method starts with your net profit and adjusts for non-cash items and changes in working capital. For example, it adds back depreciation (which reduces profit but does not involve actual cash leaving the business) and adjusts for movements in trade receivables and payables.
Many small businesses use the indirect method, because it is simpler to prepare from existing accounting records. In Malaysia, private entities report under the Malaysian Private Entities Reporting Standard (MPERS), where the statement of cash flows sits in Section 7 and either method is accepted. Your accountant can advise on which method suits your business.
How to prepare a cash flow statement
Preparing a cash flow statement means gathering your cash movements for the period and grouping them into the three sections. Follow these steps:
- Choose the direct or indirect method and set your reporting period, such as a month, quarter, or year
- Record your opening cash balance at the start of the period
- List the cash coming in and going out from operating activities and total it
- List the cash spent on or received from investing activities and total it
- List the cash from financing activities and total it
- Add the three section totals to find your net cash movement
- Add the net movement to your opening balance to get your closing cash balance
Once you can prepare a statement of past cash movements, you can build on it with a cash flow forecast to plan the months ahead.
How to read a cash flow statement
Reading a cash flow statement does not require an accounting qualification. Start with operating cash flow, because it is the most telling figure: it shows whether your core business is self-funding.
Here is a practical approach to interpreting the numbers:
- Check whether operating cash flow is positive; if it is, your day-to-day business is generating cash
- Compare operating cash flow across several periods, since a consistent decline is a warning sign even when the figure is still positive
- Look at investing activities, where large outflows might reflect growth spending, which is usually healthy
- Review financing activities, because heavy reliance on loans to cover operating costs can indicate a cash flow problem
Watch for these warning signs over multiple periods:
- Operating cash flow declining quarter after quarter
- Borrowing frequently to cover everyday expenses
- Selling assets to generate cash for running costs
If you spot any of these patterns, it is a good time to run financial reports and talk to your accountant about the underlying causes.
Positive vs negative cash flow
The bottom line of your cash flow statement tells you whether your business had positive or negative cash flow during the period. Both are worth understanding in context.
Positive cash flow
Positive cash flow means more cash came into your business than went out. This is generally a healthy sign, because it means you can cover your costs, reinvest in the business, and build a cash buffer for quieter months.
However, positive cash flow does not always mean your business is profitable. Taking out a large loan creates a cash inflow, but it also creates a future repayment obligation, so always look at where the cash is coming from, not just the total.
Negative cash flow
Negative cash flow means more cash left your business than came in. This can feel alarming, but it is not always a crisis.
Planned investments, such as buying new equipment or fitting out new premises, can cause negative cash flow in a single period. What matters is the trend. If your operating cash flow is negative over several periods, it could signal a deeper problem, whereas a one-off dip from a planned purchase is very different from ongoing losses.
Cash flow statement vs income statement vs balance sheet
Your cash flow statement is one of three core financial statements. Each shows something different, and you need all three to get a full picture of your business finances.
- Cash flow statement: tracks actual cash movements over a period and shows whether you can meet your financial obligations right now
- Income statement (profit and loss): shows your revenue, costs, and profit or loss over a period, and includes non-cash items like depreciation, so profit does not always equal cash in the bank
- Balance sheet: a snapshot of what your business owns (assets), owes (liabilities), and the owner's equity at a single point in time
Here is a common situation that shows why all three matter. Your profit and loss might show a healthy profit, but your cash flow statement reveals you are struggling to collect payments from customers, while your balance sheet shows growing trade receivables. Together, they tell you that late payments are squeezing your cash position despite strong sales.
Cash flow statement example
Here is a simplified cash flow statement for a fictional Malaysian small business, a Kuala Lumpur design studio, for the quarter ending 31 March 2026. All figures are in ringgit.
Operating activities:
- Cash received from clients: +RM120,000
- Payments to suppliers: -RM22,000
- Staff wages: -RM48,000
- SST payment: -RM6,000
- Office rent: -RM12,000
Net cash from operating activities: +RM32,000
Investing activities:
- Purchase of new computer equipment: -RM9,000
Net cash from investing activities: -RM9,000
Financing activities:
- Loan repayment: -RM8,000
Net cash from financing activities: -RM8,000
Opening cash balance: RM40,000. Net cash movement: +RM15,000. Closing cash balance: RM55,000.
In this example, the business generated RM32,000 from its core operations, spent RM9,000 on equipment, and repaid RM8,000 of a loan. The closing balance of RM55,000 is higher than the opening balance, which is a positive sign. The key point is that the core business is generating more cash than it spends on day-to-day operations.
Why cash flow statements matter for your business
Cash flow is what keeps your business running. Even a profitable business can fail if it does not have enough cash to cover expenses when they fall due. Late payments are one of the most common cash flow pressures for small businesses, and the gap between issuing an invoice and receiving payment is exactly where a cash flow statement earns its keep.
Reviewing your cash flow statement regularly helps you:
- Plan for quieter trading periods by building cash reserves during busier months
- Identify whether you need to chase overdue invoices more actively
- Decide whether you can afford to hire, invest, or expand
- Present a clear financial picture to lenders or investors
- Keep accurate records that support your SST and reporting obligations
Pairing a clear cash flow statement with good cash flow management makes it far easier to stay on top of your finances.
Take control of your cash flow with Xero
Understanding your cash flow statement is the first step. The next is making sure you have accurate, real-time financial data so you can act on what it tells you. Xero's cloud accounting software gives you live cash flow tracking and automated bank reconciliation, so you can see exactly where your money is at any time. Try Xero for your business and get one month free.
FAQs on cash flow statements
Here are answers to some frequently asked questions about cash flow statements.
Do small businesses in Malaysia need to produce a cash flow statement?
Under MPERS, the accounting framework covered above, a complete set of financial statements includes a statement of cash flows, so private companies preparing MPERS accounts generally produce one. Even where a company qualifies for SSM audit exemption, preparing one still gives you a clear view of your liquidity and helps with planning.
How do you prepare a cash flow statement?
Choose the direct or indirect method, then list your operating, investing, and financing cash movements for the period. Total each section and add them to your opening balance to reach your closing cash balance.
What's the difference between cash flow and profit?
Profit is the difference between your revenue and your costs, including non-cash items like depreciation. Cash flow is the actual money moving in and out of your bank account, so you can be profitable on paper but still run out of cash if customers are slow to pay.
Can a business survive with negative cash flow?
In the short term, yes, especially when the negative cash flow is caused by planned investment. Sustained negative operating cash flow usually signals a problem that needs addressing, such as falling sales, rising costs, or slow-paying customers.
How often should you review your cash flow statement?
Monthly is a good rhythm for most small businesses. Reviewing it regularly helps you spot trends, catch late payments early, and plan ahead for periods when cash might be tight.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.