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Statement Of Cash Flows And Financial Decision Making

Describe the statement of cash flows and why it is important to financial decision making.

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The statement of cash flows is designed to provide a look at the cash inflow and the cash outflow of a company. The idea is to provide a real view of the cash position of the firm in order to insure that there is enough cash on hand. A business will require cash for three primary reasons:

1) For transactions --- to pay bills

2) For investing --- to take advantage of investment opportunities as they arise (need an initial cash outlay to begin the implementation phase

3) Precautionary --- for taking care of contingencies and unplanned ...

Solution Summary

All business firms require a source of cash for operational and investment purposes. The analysis of the statement of cash flows allows the firm to identify sources and timing of cash in order to maintain its operations and provide for future investment opportunities. This discussion references these requirements in simple to follow language and application.