Cash Flow Accounting Tool

Direct versus indirect

How do I calculate my cash flow statement?

Digital Finance Transformation

Which method is best suited to determine the cash flow?

Cash flow provides information on whether revenues exceeded expenses during the business period - or vice versa - and is thus an important indicator of a company's competitiveness and economic development. Within the framework of the annual financial statement, every listed company is obliged to guarantee insights into the balance sheet, profit & loss statement as well as the origin and use of financial resources. The latter, the so-called cash flow statement, can basically be determined using two methods - the indirect and the direct method.

Digitalisation is tidying things up: although the indirect method of cash flow determination is still used as "state of the art" in most companies, it is no longer up to date. 

But what are the differences between the indirect and direct methods and what are the possible advantages or disadvantages? Before we answer this question, let's take a brief look at the contents of the cash flow statement.

The cash flow statement shows where cash inflows and outflows come from, what they are used for and how cash and cash equivalents develop.

Herkunft der Mittel

Origin of funds

Sales revenues, miscellaneous income

Verwendung der Mittel

Use of funds

Financing, investments, liabilities, various expenses

We differentiate the cash flows into three areas:

We differentiate into the area of operations, the area of investments and the area of financing activities.

Operatives Geschäft

Operating business

 

.

 

Investitionen

Investments

Finanzierungsaktivitäten

Financing activities

Operatives Geschäft

Operating business

 

.

 

Investitionen

Investments

Finanzierungsaktivitäten

Financing activities

This information provides insight into the financial position of the company, its (future) liquidity and its financing through equity or debt.

Not only are these insights of interest to investors, but management can also use this liquidity-critical information to react to opportunities and risks at short notice, provided the information is available promptly - i.e. as up-to-date as possible.

There are, as I said, two possibilities: the indirect and the direct method.

With the indirect method for determining cash flow, which is no longer up-to-date but is widely used, the items affecting or not affecting liquidity have to be determined retrogradely with a lot of manual effort for the annual financial statement.

Cash Flow

Indirect method

(Simplified representation)

Net profit for the year
- Non-cash income
+ non-cash expenses
= cash flow

(differentiated by cash flow from operating activities, investments, financing activities)

To determine the cash flow statement according to the indirect method, accounting data is used almost exclusively.

Historically, however, it has not been the objective of accounting to provide information on the liquidity situation and financial strength of a company. Thus, the data are not available in the desired form and obtaining this information at the end of the period is correspondingly costly.

This contrasts with the direct method. However, the direct method requires a data and information structure that accounting cannot provide in this form either without considerable manual effort. The "cash effect", i.e. the liquidity effect, would have to be identified, analysed and "written down" from every booking, from every business transaction.

In simplified terms, this looks as follows:

Cash Flow

Direct method

(Simplified representation)

+ cash income
- cash expenses
= cash flow

(differentiated by cash flow from operating activities, investments, financing activities)

Asset position

Asset position

Balance Sheet
Profit and loss account

Earnings position

Profit and loss account
Cash Flow Statement

Cash Flow Statement

Development, source and application of funds

However, in addition to the actual analysis, some additional things have to be observed, such as the issue of value-added tax: the value-added tax included in the receivables is "cash" at first glance, but it becomes a liability to the tax office. Thus the "cash effect" is zero. The same applies - of course with the opposite sign - to the input tax included in the liabilities.

The areas of "financing activities" and also "investment activities" have already had to be published for some time as part of the annual financial statement according to the direct method. This is a predictable handicap for companies to also present the area of "operating activities" according to the direct method in the future.

However, the derivation of the cash flow statement in this direct way is not feasible for companies due to the large number of business transactions and the associated manual effort.

The solution: The module "Cash Flow Accounting" automatically shows the current financial position of the company according to the direct method.

KPS Cash Flow Accounting Tool

Your cash flow statement according to the direct method

Maximum transparency of the financial situation for the management, automated liquidity-critical reports, time and effort savings especially for the annual financial statement

The module is an integrated, but at the same time completely encapsulated part of the SAP system and in turn consists of the two applications "liquidity calculation" and "liquidity planning".

By means of the liquidity calculation, each entry is broken down into cash and non-cash items.

The liquidity statement also shows the source and application of funds on the basis of actual figures. The calculations are made on a daily basis, but do not influence day-to-day business and provide the desired information at the push of a button, i.e. cash flow statement realtime.

Liquidity planning is based on the same master data structure. Three data sets with planned figures - instead of the actual figures - run into the rolling planning calculations and show how the planned liquidity situation of the company will develop in the future.

More about KPS Financial Assets

Whitepaper "CFO Agenda 2025"

More Insights

Everything that is important and becomes important.

Digital Finance Transformation mit S/4HANA

CFO Agenda 2025

Digital Finance Transformation with S/4HANA

The CFO and their organisation are becoming the architects of value creation in the business. In this role, the finance function must face three key challenges in particular: Better cost control, focus on new growth and sustainability. With our KPS Finance Assets, we support the CFO and his finance department in the finance transformation and develop the finance vision together.
SAP Commerce Cloud

Instant Insight

SAP Commerce moves to the cloud

SAP Commerce is powerful and reliable, and yet SAP has decided to change the way it works. All system components are to move to the cloud by 2023. We ask: What are the benefits of a cloud-based system compared to an on-premise solution?
E-Commerce jederzeit und überall

SAP Commerce Cloud

Your SAP Commerce Cloud Migration

With SAP Commerce Cloud, you no longer have to worry about - or even pay for - maintenance, hosting, deployment or support. By upgrading to the cloud, you can significantly reduce your previous operational costs associated with on-prem and create unique omni-channel shopping experiences.

Privacy settings

We use cookies on our website. Some of them are essential, while others help us to improve this website and your experience. With your consent, we use cookies to analyse the usage of our website.

We also use cookies for marketing to help us measure the success of our marketing efforts. In the settings you will find detailed information about the individual cookies, and you can refuse the use of cookies.

You can change or revoke your selection at any time on any KPS.com page in the footer under Privacy Settings.

Essential Cookies

Essential cookies enable basic functions and are necessary for the proper functioning of the website.

Cookie Banner

  • Cookie Name: kps-privacy-settings
    Value: PrivacyLevel_0#a
    Storage Duration: 4 weeks
    Description: This cookie is required to save cookie settings. It is a purely technical cookie.

HubSpot:

  • Cookie Name: __hs_opt_out
    Storage Duration: 6 months
    Description: This cookie is used by the opt-in privacy policy to prompt the visitor to accept cookies again. It is set when you allow visitors to disable cookies. It contains the string "Yes" or "No."

  • Cookie Name: __hs_d_not_tracking
    Storage Duration: 6 months
    Description: This cookie can be set to prevent the tracking code from sending information to HubSpot. It contains the string "Yes."

  • Cookie Name: _hs_initial_opt
    Storage Duration: 7 days
    Description: This cookie is used to prevent banners from being displayed every time visitors access your website in strict mode. It contains the string "Yes" or "No."

  • Cookie Name: __hs_cookie_cat_pref
    Storage Duration: 6 months
    Description: This cookie is used to capture the categories a visitor has consented to. It contains data about those categories.

  • Cookie Name: __hs_gpc_banner_dismiss
    Storage Duration: 3 months
    Description: This cookie is used when the Global Privacy Control banner is dismissed.

  • Cookie Name: hs_ab_test
    Storage Duration: Until the end of the session
    Description: This cookie is used to ensure that visitors see the same version of an A/B test page they were shown previously. It contains the ID of the A/B test page and the ID of the variant selected for the visitor.

  • Cookie Name: __cfruid
    Storage Duration: Until the end of the session
    Description: This cookie is set by HubSpot's CDN provider in accordance with its rate-limiting policies.

  • Cookie Name: ___cfuvid
    Storage Duration: Until the end of the session
    Description: This cookie is set by HubSpot's CDN provider in accordance with its rate-limiting policies.

  • Cookie Name: ___cf_bm
    Storage Duration: Until the end of the session
    Description: This cookie is set by HubSpot's CDN provider in accordance with its rate-limiting policies.

Functional cookies

Functional cookies are used by third parties or publishers to display personalised advertisements. They do this by tracking visitors across websites.

Google Analytics

Cookie Name: _ga
Storage Duration: 2 years
Description: Used to distinguish between users.

Cookie Name: _gid
Storage Duration: 24 months
Description: Used to distinguish between users.

Cookie Name: _gat
Storage Duration: 1 minute
Description: Used to throttle the request rate. If Google Analytics is provided via Google Tag Manager, this cookie is named dc_gtm<property-ID>.

Cookie Name: hide-cookieinfo
Storage Duration: 30 days
Description: Cookie set for querying the cookies.

HubSpot

Cookie Name: __hstc
Storage Duration: 6 months
Description: The main cookie for visitor tracking. It contains the domain, the user token (hubspotutk), the first timestamp (of the first visit), the last timestamp (of the last visit), the current timestamp (for this visit), and the session count (increases with each subsequent session).

Cookie Name: hubspotutk
Storage Duration: 6 months
Description: This cookie tracks the identity of a visitor. This cookie is passed to the HubSpot software when submitting a form and is used for deduplicating contacts. It contains an opaque GUID to represent the current visitor.

Cookie Name: __hssc
Storage Duration: 30 minutes
Description: This cookie tracks sessions. It is used to determine whether the HubSpot software needs to increment the session count and timestamps in the __hstc cookie. It contains the domain, the number of page views (viewCount, increases with each page view in a session), and the session start timestamp.

Cookie Name: __hssrc
Storage Duration: End of session
Description: Whenever the HubSpot software changes the session cookie, this cookie is also set. It determines whether the visitor has restarted the browser. If this cookie is not present when HubSpot manages cookies, it is considered a new session. It contains the value "1" if present.

External media

Content from video platforms and social media platforms is blocked by default. If cookies from external media are accepted, access to this content no longer requires manual consent.

LinkedIn Tag

Cookie Name: bcookie
Storage Duration: 365 days
Description: Browser Identifier cookie to uniquely identify devices accessing LinkedIn to detect abuse on the platform and for diagnostic purposes.

Cookie Name: bscookie
Storage Duration: 365 days
Description: Used for remembering that a logged-in user is verified by two-factor authentication and has previously logged in.

Cookie Name: JSESSIONID
Storage Duration: Session
Description: Used for Cross-Site Request Forgery (CSRF) protection and URL signature validation.

Cookie Name: lang
Storage Duration: Session
Description: Used to remember a user's language setting to ensure LinkedIn.com displays in the language selected by the user in their settings.

Cookie Name: lidc
Storage Duration: 1 day
Description: To facilitate data center selection.

Cookie Name: sdsc
Storage Duration: Session
Description: Signed data service context cookie used for database routing to ensure consistency across all databases when a change is made. Used to ensure that user-inputted content is immediately available to the submitting user upon submission.

Cookie Name: li_gc
Storage Duration: 180 days
Description: Used to store consent of guests regarding the use of cookies for non-essential purposes.

Cookie Name: li_mc
Storage Duration: 180 days
Description: Used as a temporary cache to avoid database lookups for a member's consent for use of non-essential cookies and used for having consent information on the client side to enforce consent on the client side.

Cookie Name: UID
Storage Duration: 720 days
Description: Cookie used for market and user research.

Cookie Name: UserMatchHistory
Storage Duration: 30 days
Description: LinkedIn Ads ID syncing.

Cookie Name: AnalyticsSyncHistory
Storage Duration: 30 days
Description: Used to store information about the time a sync took place with the lms_analytics cookie.

Cookie Name: lms_ads
Storage Duration: 30 days
Description: Used to identify LinkedIn Members off LinkedIn for advertising.

Cookie Name: lms_analytics
Storage Duration: 30 days
Description: Used to identify LinkedIn Members off LinkedIn for analytics.

Cookie Name: li_fat_id
Storage Duration: 30 days
Description: Member indirect identifier for Members for conversion tracking, retargeting, and analytics.

Cookie Name: li_sugr
Storage Duration: 90 days
Description: Used to make a probabilistic match of a user's identity.

Cookie Name: _guid
Storage Duration: 90 days
Description: Used to identify a LinkedIn Member for advertising through Google Ads.

Cookie Name: BizographicsOptOut
Storage Duration: 10 years
Description: Used to determine opt-out status for non-members.

Cookie Name: li_giant
Storage Duration: 7 days
Description: Indirect identifier for groups of LinkedIn Members used for conversion tracking.

Cookie Name: oribi_cookie_test
Storage Duration: Session
Description: To determine if tracking can be enabled on the current domain.

Cookie Name: oribili_user_guid
Storage Duration: 365 days
Description: Used to count unique visitors to a website.

Cookie Name: ln_or
Storage Duration: 1 day
Description: Used to determine if Oribi analytics can be carried out on a specific domain.

Cookie Name: ar_debug
Storage Duration: Session
Description: Supports Google attribution reporting API integration to mitigate signal loss.

Lead Forensics

Cookie Name: __lfluuid
Storage Duration: 10 years
Description: The _lfuuid cookie allows a website to track visitor behavior on the sites on which the cookie is installed. Tracking is performed anonymously until a user identifies himself by submitting a form.

Changing privacy settings

Imprint

Data protection statement