Many users of financial statements – investors and creditors, believe the statement of cash flows is the most important of the financial statements.
What information does the statement of cash flows provide to its user, and how is this information organized in the statement?
Do you agree with the opening statement that “the statement of cash flows is the most important of the financial statements?” Why or why not, explain
Answer:
The Cash Flow Statement is the statement of cash flows of the company or it can be considered as funds flow statement .
Cash Flow Statement is among the three financial statements which is commonly used for gauge company’s performance or overall health.
investors and creditors are mainly interested in whether company has positive amount of cash flows from its operations. As per common rule, any company must cover its costs by cash it brings in through day-to-day running activity of business.
A potential creditor and investor wants that cash which company brings in business through operations should exceeds any cash brought in through selling assets and borrowing money
Form the cash flow statement investor will make sure that corporation has enough amount of cash flow to pay out adequate return on the investment. Investor using statement of cash flows for evaluating how well company is managing cash because the investors might eventually sell his or her shares.
Form the cash flow statement the creditor can take the idea about weather company has sound cash management
