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Cash Flow Statement Essay

454 words - 2 pages

Statement of cash flows

Statement of cash flows helps users in at least 4 ways.
• It can help users predict whether a firm will have positive future net cash flows
• It can help users determine a firm’s need for external financing and its ability to pay debts and dividends. It gives users information about current cash flow, possible future cash needs, and borrowed cash that must be repaid in the future
• The statement also helps users assess a firm’s overall financial health. The combination OT, INV., FIN cash flows can help a user predict whether a firm will experience growth or whether it is in decline.
• The statement focuses the user on cash by reconciling the firm’s accrual net income to the change in the cash ...view middle of the document...

Indirect method is also easier to compute and requires on statement instead of two.

Types of information trade creditors, equity investors and managers expect to obtain from financial statements
• Trade Creditors want to know whether a company pays its bill on time and if they will pay bills promptly in the future. Long term creditors try to determine whether a company can make periodic interest payments and will repay the principal amount in the distance future
• Equity investors want to find out whether a company can distribute dividends in the future and whether its stock will increase in value. They try to predict whether a company will have sufficient cash and retained earnings to declare dividends. Investors base their predictions of future stock prices on the firm’s earnings.
• Managers have external and internal perspectives of decision makers. Managers want to present and analyse financial statements in the best possible light for the benefit of stockholders and creditors. Managers also use financial statements to monitor the firm’s performance, as do other external decision makers. Managers, has also access to additional info. In making business evaluations.

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