week 7 303

A statement of cash flows is often one of the most used and least understood of the key financial statements. However, it is a vital report to use when evaluating or analyzing a company. Identifying where a company is receiving and using its cash—through operations, investing, and financing activities—is more important than knowing the company's net income:

• Describe the types of accounts/transactions in each section of the statement of cash flows.
• Explain how the net effect of cash used in each activity will help to evaluate liquidity, solvency, and financial flexibility.
• Explain why this statement is necessary even when a company has substantial net income.
• Substantiate your response with examples.