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Statement of Cash Flows

DQ. 1 As an investor, does one section of the statement of cash flows interest you more than other sections? Why or why not?

DQ. 2 Does your answer to DQ 1 change if you are management? A creditor? Why or why not?

DQ. 3 Which method do you prefer, the direct or indirect? Why?

DQ. 4 In what ways does the statement of cash flows relate to the balance sheet?

DQ. 5 In what ways does the statement of cash flows relate to the income statement?

Solution Preview

DQ. 1 As an investor, does one section of the statement of cash flows interest you more than other sections? Why or why not?

Answer 1: As an investor, I'll be more interested in the Operating Section of the Cash Flow Statement. Operating section represents the cash received or expended because of company's core business activities. The items in the financing and investing sections of the Cash Flow Statement usually do not persist over time. But the items in the operating section of the cash flow statement do persist over time. As an investor, I would only want to focus on those items of a company's operation that are persistent in nature. This will help me to make a sound and rational investment decision.

DQ. 2 Does your answer to DQ 1 change if you are ...

Solution Summary

This solution explains the cash flow statement in detail (with its several components). It also distinguishes between direct and indirect methods and how cash flows relate to information on the income statement.

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