Cash flow statements in Switzerland: methods and worked example
A cash flow statement explains why cash rises or falls during a period. It separates money generated by operations, spent on investments and received from or repaid to finance providers. A worked example connects accounting profit to the change in cash.
By Sarah Prieur · Swiss certified accountant
The cash flow statement: the essentials
A cash flow statement explains the change in cash between two dates. It separates movements into operating, investing and financing activities, complementing the balance sheet and income statement.
- A sale that has not been paid is not yet a cash inflow.
- A loan increases the bank balance without increasing profit.
- Depreciation reduces profit without causing a payment when the expense is recorded.
- Total cash flows must reconcile to the change in cash, after any necessary reconciling adjustments.
How does it differ from a cash flow forecast?
The cash flow statement reports movements for a past period: a month, quarter or financial year. It answers: “Where did the money come from, and how was it used?”
A cash flow forecast estimates future receipts and payments. It answers a different question: “Will we be able to meet the next payment deadlines?” Our article on managing company cash flow explains how to plan ahead.
The balance sheet shows the position at a particular date. The income statement measures income and expenses for the period. Reading all three together helps explain how a profitable business can still consume cash.
The three categories of cash flow
| Category | What it describes | Examples |
|---|---|---|
| Operating | Cash flows from day-to-day business activities | Customer receipts, payments to suppliers and salaries |
| Investing | Purchases and disposals of long-term assets | Buying machinery, selling equipment |
| Financing | Changes in contributed capital and borrowings | Capital contributions, new loans and repayments of principal |
Higher revenue alone does not create a positive cash flow: customers must pay the corresponding invoices. Similarly, buying goods causes a cash outflow when payment is made.
Selling machinery produces an investing cash inflow equal to the proceeds received. Any accounting gain on disposal is a separate figure. Avoid counting that gain again in operating cash flow.
Interest, dividends and certain other cash flows must be classified consistently with the reporting framework being applied. Do not combine rules from the Swiss Code of Obligations, Swiss GAAP FER and IFRS without reviewing the requirements.
The direct and indirect methods
The direct method lists the main operating cash receipts and payments, such as customer receipts, supplier payments, salaries and other payments. It is easy for business owners to interpret, but requires transactions to be classified correctly.
The indirect method starts with an accounting result and adjusts it to determine operating cash flow. The simplified Swiss statutory example below starts with net profit. Non-cash expenses, such as depreciation, are added back, followed by adjustments for changes in operating balance sheet items.
| Change, all else being equal | Effect on operating cash flow |
|---|---|
| Increase in trade receivables | Decrease: some sales have not yet been collected |
| Increase in inventory | Decrease: more resources are tied up in stock |
| Increase in trade payables | Increase: some purchases have not yet been paid for |
| Decrease in trade payables | Decrease: earlier liabilities have been settled |
Both methods should produce the same operating cash flow when the scope and underlying data are consistent. The indirect method is therefore more than simply adding depreciation to profit.
Worked example: from profit to closing cash
An SME starts the year with CHF 15,000 in cash and earns net profit of CHF 50,000. This example excludes foreign currencies, business acquisitions and complex transactions to show the underlying mechanics.
| Cash flow statement | Amount |
|---|---|
| Net profit | CHF 50,000 |
| Add back non-cash depreciation | + CHF 12,000 |
| Increase in trade receivables | − CHF 20,000 |
| Increase in inventory | − CHF 8,000 |
| Increase in trade payables | + CHF 6,000 |
| Cash flow from operating activities | CHF 40,000 |
| Equipment purchased and paid for | − CHF 25,000 |
| Cash flow from investing activities | − CHF 25,000 |
| New loan received | + CHF 20,000 |
| Repayment of loan principal | − CHF 10,000 |
| Cash flow from financing activities | CHF 10,000 |
| Net increase in cash | CHF 25,000 |
| Opening cash | CHF 15,000 |
| Closing cash | CHF 40,000 |
The check is straightforward: CHF 40,000 − CHF 25,000 + CHF 10,000 = a CHF 25,000 increase. Cash therefore rises from CHF 15,000 to CHF 40,000.
The CHF 50,000 profit is not the amount available for distribution. The company has tied up funds in customers and inventory, invested in equipment and changed its borrowings. Any distribution also depends on the applicable rules and the company’s financial position.
How to prepare and check your cash flow statement
Gather opening and closing balance sheets, the income statement, fixed asset schedules, financing movements and details of the main operating accounts. Define which accounts make up cash and apply the same definition at both dates.
Calculate operating cash flow, then identify investments actually paid for and financing receipts and payments. Accounting reclassifications without a payment must not become cash flows. Equipment obtained through non-cash financing requires separate analysis, not an invented cash receipt and payment.
Reconcile the total to the movements in bank balances and cash on hand. Exchange differences on foreign currency cash balances may require a separate reconciling line. Do not force the figures to balance with an unexplained “other” amount.
Changes in operating working capital help explain differences between profit and cash flow. To identify missing documents or adjustments, also work through the year-end accounting checks.
Who needs a cash flow statement in Switzerland, and how should it be read?
Under Articles 961 and 961b of the Code of Obligations, businesses legally required to undergo an ordinary audit must include a cash flow statement in their annual accounts, subject to the applicable exemptions. The requirement does not automatically apply to every small Swiss LLC. Other reporting frameworks or contractual commitments may impose additional requirements.
A business can also prepare the statement voluntarily for management purposes. Negative operating cash flow does not always have the same meaning: it may result from losses, growing receivables or seasonal stockbuilding. Investigate its cause and how long it lasts.
Negative investing cash flow may reflect routine equipment replacement. A rising bank balance, meanwhile, may come entirely from a new loan. Read the categories together and examine whether the same pattern recurs over time.
Frequently asked questions
Is cash flow simply profit plus depreciation?
That calculation is a simplified indicator. It leaves out other adjustments and changes in receivables, inventory and liabilities. It will generally not explain actual operating cash flow on its own.
Is a transfer between two company bank accounts a cash flow?
If both accounts fall within the same definition of cash, the transfer does not change total cash. It must be eliminated from the statement.
Is repaying a loan an expense?
Repayment of principal is a financing cash outflow and reduces the liability. Interest is separate and follows its own accounting treatment and cash flow classification.
Must every small Swiss LLC prepare this statement annually?
No, its legal form alone does not create that obligation. Check the applicable reporting rules, statutory audit requirements and contractual commitments. The statement can still be useful on a voluntary basis.
Can the statement be used to forecast payments?
It explains past movements. To anticipate payment deadlines, prepare a separate cash flow forecast informed by what you learn from the statement.
Sources
- Swiss Code of Obligations, Articles 961, 961b and 961d: requirements, cash flow categories and exemptions. The English translation is informative; the official-language texts are authoritative.
- IFRS Foundation: IAS 7 Statement of Cash Flows: a comparative reference on cash flows and non-cash transactions, without imposing IFRS on Swiss SMEs.
- SECO: cash flow as an indicator of financial capacity (in French).
The worked example is illustrative and explains the mechanics of a simplified Swiss statutory cash flow statement.
