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Statement Of Cash Flows Essay

790 words - 4 pages

Statement of Cash Flows

Statement of Cash Flows
Accounting is the major means of organizing and summarizing information regarding economic activities. The information provided by the accounting practices through financial reporting helps decision makers make appropriate business decisions. The statement of cash flows is one of the three primary financial reports that companies should include in external financial reports to its users according to the generally accepted accounting principles (GAAP). The statement of cash flows provides pertinent information to its users.
The Primary Purpose of Cash Flows
“The primary purpose of the statement of cash flows is to show the changes in ...view middle of the document...

2007). Investors use the cash flows to determine if short-term price of the stock has the potential to rise and the statement also reveals a company’s ability to generate a dividend, which supports stock appreciation.
The statement of cash flows represents the company’s financial health to its owners and lenders. The statement of cash flows reveals what financial decisions management made during the period. Information provided by cash flows can indicate whether or not management made questionable decisions. “The cash flow statement identifies the cash that is flowing in and out of the company. If a company is consistently generating more cash than it is using, the company will be able to increase its dividend, buy back some of its stock, reduce debt, or acquire another company. All of these are perceived to be good for stockholder value” (“Cash Flow Statement”, nd, para 5). The statement of cash flows reveals how a company uses its cash and what a company does with its increase or decrease from profit. The statement of cash flows in conjunction with the income statement can be a useful tool for investors to use in decision –making because it reveals if the company can meet short-term and long-term obligations if problems arise.

Classification of Cash Flows
Official pronouncements in the accounting profession established a three-fold classification of cash receipts and cash payments into operating activities, investing activities, and financing activities (Kieso et al. 2007). Cash flow from operating...

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