Purpose of Statement of Cash Flows and Market Interest for Bond
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-What is the purpose of the statements of cash flows? Describe the three sections of the statements of cash flows.
- Define contractual and market interest rates for a bond, respectively, and explain how the change of market interest rate affects the bond value.
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The purpose of statement of cash flows and market interest for bonds are examined.
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Question 1: What is the purpose of the statements of cash flows? Describe the three sections of the statements of cash flows.
In cash flow statements, analysis of funds is made according to its meaning as cash. When a transaction takes place either cash is received or paid. In cash flow analysis the effect on cash position of the business is considered. Transaction from which cash is received is known as source of cash and transaction due to which cash is paid is known as use of cash.
The purpose of cash flow statement is to explain reasons for inflows or outflows It helps management in making plans for future.
A projected cash flow statement helps management in ascertaining how much cash will be available to meet obligations of creditors, to pay dividend and to pay bank loans.
Cash flow statement shows changes in cash position from one period to another
The purpose of cash flow analysis is twofold.
1 To assess ability of a firm to generate future cash flows and
(2) ability to pay dividend and to meet future obligations. In short the purpose of cash flow statement can be summarized as follows.
1. To provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances
2. To provide information for evaluating changes in assets, liabilities and equity
3. To indicate the amount, timing and probability of future cash flows
Cash flow statement covers net cash provided by following three activities.
1 Operating activities
2 Investing activities.
2 Financing activities
The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes ...
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