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<p>how the financial reporting is handling this problem </p>
in the classical financial reporting companies were relying on balance and Income statement to understand the financial indicators , but this not enough , the need creates three road combining balance sheet and income statement . You have to reconcile your nominal profit to hard cash to understand how the company is managing the cash issue . Three sources of cash generation and application are agreed . Operating , investing and financing , by mapping three categories with cash in/out gives us pictorial picture and answering the question from where the firm gets its cash and how it disposes it . We have now what we call it the statement of cash flow , earlier it was called statement of changes in the financial statement .
Because the finance manager is aggressive and make use of the available money in making investments that generate profits but reduce liquidity.
