Cash flow statement (direct method)

The cash flow statement traces all cash inflows and outflows of a company over a period, categorised into three activities: operating (cash generated from operations), investing (capex, acquisitions, disposals) and financing (debt, dividends, equity). Under the direct method, operating cash flow is presented gross (cash received from customers, cash paid to suppliers and employees), while the indirect method starts from net income and adjusts for non-cash items and working capital movements. In financial due diligence, it is the most difficult financial statement to manipulate and therefore the most revealing: it verifies the coherence between reported earnings and actual cash generation, measures net operating cash flow and can surface hidden financing or working capital manipulation.

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Example: a French services company reports EBITDA of CHF 2.0 million, but the cash flow statement shows operating cash flow of only CHF 0.4 million: a CHF 1.6 million gap explained by a working capital deterioration invisible in the income statement. This signal triggers a detailed working capital review and leads to a normalised BFR restatement, directly impacting the completion accounts price mechanism.

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At Hectelion, the cash flow statement is systematically reconstructed and stress-tested in every financial due diligence engagement.