The cash flow statement is the accounting statement within a balance sheet that summarises and classifies the cash flows of two consecutive financial years, indicating which business situations have caused them.

The publication of the cash flow statement is mandatory only for companies that file ordinary financial statements. Micro and small enterprises are therefore excluded from this obligation, which makes them more exposed to the crisis.

The cash flow statement is a crisis warning system

On 1 September 2021, the New Italian Crisis and Insolvency Code will come into force, replacing the current Bankruptcy Law. The new law aimed at detecting early warning signs of crisis, which is defined as "the state of economic-financial imbalance that makes the insolvency of the debtor likely".

According to the new definition, and unlike the current legislation, the crisis does not arise when the insolvency occurs, but as soon as problems are detected in converting assets into the liquidity needed to cover maturing loans. All companies are therefore required to appoint a control body and to forecast their cash flows on quarterly basis to promptly adopt recovery strategies if signs of difficulty emerge.

Monitoring liquidity through the cash flow statement

In order to forecast future cash flows, companies first need to analyze the composition of liquid assets and how much these fluctuate over time. This information is provided by the cash flow statement. Through the analysis of cash flows it is in fact possible to understand: 

• whether the company's core business generates or absorbs liquidity;
• whether the company can repay the loans received and the interest payable on loans;
• whether the cash inflow is sufficient to pay taxes;
• whether the liquid resources of the company are sufficient to plan new investments or if it needs to apply for financing.

Although theWith the entry into force of the Corporate Crisis Code, it will be mandatory to monitor corporate liquidity. new law does not enlarge the number of companies obliged to file the cash flow statament, small companies are also strongly advised to draft it, as it provide the entrepreneur with the information needed to take more accurate decisions based on the real business' cash availability.