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The statement of cash flows one of the most important financial statements that help users to identify the financial conditions of the company the subject of analysis.
The importance of the statement of cash flows is that it shows the monetary effect of all activities undertaken by the company during the financial statement with the nature of the impact of being a cash flow inside the company or out of the company,
The division of this list of the cash flows within the activities of its common nature helps to identify strengths and weaknesses in terms of the company's ability to generate cash which is the item that will be used to repay liabilities and finance expansions and the distribution of profits in both the short-term or long-term
The statement of cash flows define movement of cash on three levels
* - Cash flows from operating activities
define cash flows generated from the main activities carried out by the institution
* - Cash flows from investing activities
define cash flows that include the sale and purchase of long-term assets
* - Cash flows from financing activities
define cash flows that related to access to the resources of the owners or returned to them, with regard to obtaining financing from lenders or loan repayments to them.
so
The banks consider the statement of cash flows is strong evidence of the ability to repay the loans the company in short- or long-term .
thanks
The statement of cash flows tells you how much cash went into and out of a company during a specific time frame such as a quarter or a year. You may wonder why there's a need for such a statement because it sounds very similar to the income statement, which shows how much revenue came in and how many expenses went out.
The difference lies in a complex concept called accrual accounting. Accrual accounting requires companies to record revenues and expenses when transactions occur, not when cash is exchanged. While that explanation seems simple enough, it's a big mess in practice, and the statement of cash flows helps investors sort it out.
The statement of cash flows is very important to investors because it shows how much actual cash a company has generated. The income statement, on the other hand, often includes noncash revenues or expenses, which the statement of cash flows excludes.
One of the most important traits you should seek in a potential investment is the firm's ability to generate cash. Many companies have shown profits on the income statement but stumbled later because of insufficient cash flows. A good look at the statement of cash flows for those companies may have warned investors that rocky times were ahead.
Mr. Mohammed Iqbal Abubakar has explained this Question properly
Without positive cash flow, a company will not be able to meet its financialobligations, thereby leading to a cash crunch or bankruptcy.
Cash flow is the movement of money into or out of a business, project, or financial product.
The statement of cash flows is a valuable reporting tool for managers, investors, and creditors.
Being profitable does not necessarily mean being liquid.
The statement of cash flows is very important to investors because it shows how much actual cash a company has generated. The income statement, on the other hand, often includes noncash revenues or expenses, which the statement of cash flows excludes.
The cash flow statement is intended to[4]
Cash Flow has the same importance as Blood in human body.
No blood no Life as if their is no cash flow then everything is useless as they are only figures.
The Cash flow statement basically not only tells you about the inflow or out flow of money in business during a specific period, but it also indicates the which part of business consumes or generates the cash.
The cash flow comprises of three parts as mentioned below.
1. Cash Flow from Operation
2. Cash Flow from Investing
3. Cash Flow From Financing.
Each part has it significance not only from the point of view of internal management but also for its stake holders.
Like cash flow from operation tell you the amount of inflow or outflow from business from core operations.
Cash Flowfrom Iinvesting indicate the whether the business is inveating or divesting.
Cash Flow from financing indicate that that either that company is in its equity or debts.
These are only some of the aspect of Cash Flow
the primary purpose is to provide information about cash receipts and cash payment. A secondary purpose is to provide information about investing and financing activities
This information should help users to asses
1- the enterprises ability to generate positive cash flows in the future (liquidity)
2- the enterprises ability to meet it is obligation and pay dividends (solvency)
3-if the enterprises need future financing
4-the reason of difference between net income and associated cash receipt and payment
5-the effective on financial position of both cash and non cash investing and financing transaction during the period
its like air bag for cars :)
Cash Flow Statement is like a pulse rate if your pulse rate are not correct you are sick if cash flow is negative company is Sick
