Investors look for several key things when reading a cash flow statement from a startup:
- Cash flow from operating activities: Investors want to see positive cash flow from operating activities, which indicates that the company’s core business is generating cash. They will pay particular attention to the company’s ability to convert net income into cash, as well as changes in working capital.
- Cash flow from investing activities: Investors will look at the company’s cash flow from investing activities to see how the company is investing its cash. They want to see that the company is making smart investments that will generate a return in the future.
- Cash flow from financing activities: Investors will look at the company’s cash flow from financing activities to see how the company is financing its operations. They want to see that the company has a solid financing strategy that balances debt and equity and that it is not relying too heavily on debt.
- Overall liquidity: Investors will look at the company’s overall liquidity to see how much cash the company has on hand to meet its short-term obligations. They want to see that the company has enough cash to cover its immediate needs, such as paying bills and salaries.
- Cash burn rate: Investors will look at the company’s cash burn rate, which is the rate at which the company is spending cash each month. They want to see that the company has a plan to reduce its cash burn rate over time and eventually become cash flow positive.
Overall, investors want to see that the company has a solid understanding of its cash flow and is managing its cash wisely. They want to see that the company has a plan to generate cash from its core business and invest that cash wisely to fuel growth.