What is the purpose of the statement of cash flows? What information does it provide? Be sure to explain why statements of cash flows are important when assessing the financial strength of an organization.
1. What is the purpose of the statement of cash flows?
The purpose of the Cash Flow Statement is to show how the company is paying for its operations and future growth, by detailing the "flow" of cash between the company and the outside world; positive numbers represent cash flowing in; negative numbers represent cash flowing out.
See more detail http://www.moneychimp.com/articles/financials/cashflow.htm
2. What information does it provide?
Cash Flow Statement is a financial document detailing the exchange of cash between a business and the outside world. It is a summary of a company's cash flow over a given period of time.
The flow is categorized as:
• Flow "in" from Operations
(cash the company made by selling goods and services)
• Flow "in" from Financing
(cash the company raised by selling stocks and bonds)
• Flow "out" to Investing
(cash the company spent investing in its future growth)
Each of these flows can actually flow both ways. Investors like to see that the company can cover its spending with cash from operations, without having to turn to financing. The cash flow statement also has to reconcile the net effect of these flows with the difference in its cash holdings at the beginning and end dates of the reporting period. http://www.moneychimp.com/glossary/cash_flow_statement.htm
See the main article for a sample cash flow statement.
3. Be sure to explain why statements of cash flows are important when assessing the financial strength of an organization.
It is important because it shows the financial strength (the amount of cash available) at any point in time, in terms of cash flow. The cash flow is, in effect, a measure of a company's financial health, which equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts ...
This solution discusses the purpose of the statement of cash flows, as well as the type of information the cash flow statement provides. It also explains why statements of cash flows are important when assessing the financial strength of an organization.