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Negative Cash Flows

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Upon studying its statement of cash flows, you note that over the last three years a firm has consistently reported negative cash flow from operating activities, positive cash flow from investing activities, and negative cash flow from financing activities. What does this combination of cash flows suggest to you about the firm? Is there any additional information that you would like to see? If so, what?

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Solution Summary

This solution describes ways to interpret a company's statement of cash flows.

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This tells me that the company is selling its long-term investments (including possibly plant, property, and equipment), paying its debts, paying dividends, and/or redeeming stock, and that its operations are not producing positive cash flows. This is can be a sign that the company is in financial distress. Therefore, I would want to see:

(1) the magnitude of the positive and negative cash flows, and the net effect on cash: Though negative operating cash flows are ...

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