Explore BrainMass

Importance of Interpreting Cash Flow Statements

What may be gained by interpreting a cash flow statement?

Please include references.

Solution Preview

What may be gained by interpreting a cash flow statement.

A cash flow statement is one of the types of financial statements of a company. Cash flow statements show the cash flow from operations, the inflow and outflow of cash, and the solvent position of the company.

Cash flow statements include operating activities (converting the items in the income statement into items on the basis of cash), investing activities (purchase and sale of long term investments and the fixed assets), financing activities (issue and purchase of shares and payment of dividend) and the amount of income tax paid and the interest paid.

Cash flow statements show the liquidity position of the company. If a cash flow statement shows negative cash flows, it means that ...

Solution Summary

This solution highlights the reasons why a perspective investor would want to interpret an organization's cash flow statement. Additionally, this solution includes two reference sources.