MANILA, Philippines - I get quite a kick watching the CSI and 24 series, seriously wanting to kick myself for not being able to let go and doing so at the expense of something more important, like maybe sleep.

One gets caught up with all that careening action on one hand and the careful splicing of evidence to make sense of everything. In business, cash flow statements are something like that.

Forming part of the triumvirate of required financial statements (the balance sheet and income statement completing the rest), the cash flow statement is often the most ignored of the brood. The balance sheet is the more sophisticated sibling—the estate owner—with its knack of showing how much assets the business really has and if it’s
worth any salt at all, i.e. in terms of net worth.

The income statement is the runaway glamour queen, given its ability to show how much money came in, how much money was spent and what’s left for the company to keep
(or to brood about, in case of losses).

Thing is, with glamour queens, sometimes you may be misled by all that makeup. Just because you have a net income of one million in your income statement does not mean it will show up as cash in your balance sheet. Accounting normally requires that income statements record revenues and expenses when they happen, not when the cash
has changed hands. On the other hand, if the last line of the cash flow statement reads one million pesos, that’s exactly what it means. The real hard dough.

If you love watching where the action goes and being anally forensic about it, the cash flow statement is the thing. It shows you the true picture of how much actual cash the company has generated and gives a good indicator of the fundamentals of
the company. It’s not enough that a business is big or that it’s never in the red. Even if a business keeps showing a profit in the income statement, it doesn’t mean that it’s not an arm’s length from the graveyard because of insufficient cash. At the end of the day, does it have enough cash to sustain the business?

The cash flow statement is carefully divided into three parts.

The Cash Flows from Operating Activities shows how much cash is being created by the business.

High growth companies tend to post negative cash flows from operations in their early years as they rapidly expand but normally, you’d prefer one that consistently produces a strong positive net cash flow from operations—especially if it’s your
own. And nowhere will you get a more laser-like look-through to tell you if the business is able to make money than in the cash flow statement.

The second section is the Cash Flows from Investing Activities, which shows how much the company has spent on capital expenditures and anything else required to keep
the business going. The third section is the Cash Flows from Financing Activities, which tells you the story of how outside financing has been raised—be it through loans, sales of stocks, etc.—in order to fund the business. If you add the three
components, you will get the actual net cash position of the company, which according to a businessman, is the only cash that’s real.

Do you have to know how to make a cash flow statement yourself? No.

You just have to make sure it’s done.

On top of the balance sheet and income statements, your accountant must always provide you a monthly cash flow statement—the one which you will actually read and learn to interpret. You might start off slow but bear with it. As you keep to it,
you will see in a snap how much real money the business is creating, where precious resources are being spent, and if external financing plays a role in driving the business. In short, you’ll get right to the action in a sharp, incisive way. Just like 24 and CSI in one.