Julie Neitzel Discusses Cash Flow Statements with U.S. News & World Report
April 8, 2020
A cash flow statement is defined as how money (i.e. cash and cash equivalents) enters and exits a company. However, a cash flow statement is so much more important than its simple definition – and WE Family Offices Partner Julie Neitzel recently explained to U.S. News & World Report all the reasons why.
According to Neitzel, cash flow is how businesses pay their employees, buy materials and cover basic expenses. Furthermore, cash is a necessity for companies to pay down debt, invest in the business and pay shareholder dividends.
Another concept that investors should understand about cash flow statements is its importance compared to net profits. “Cash flow is really more indicative of the health of a business,” Neitzel tells the publication. “Why do I say that? You can book accounting profits and not have any cash.”
While investors can look at a company’s balance sheet and its profit and loss statement, that doesn’t demonstrate how much cash is required to pay down debt, the cost of its raw materials and how efficiently the company collects its accounts receivable. Instead, those details are found in the cash flow statement, Neitzel explains.
As a result, Neitzel says that most well-known investors focus on buying stocks in companies with high cash flows. “Cash flow is the lifeblood of a business, and that really provides the framing,” she says. “That’s really important for investors to study when looking at a business or stock.”