discussion

Compare and contrast the points made regarding the usefulness and purpose of the statement of cash flows. What feedback can you give?

One of the four financial statements that organizations use is the cash flow statement. The statement shows the flow of cash in and out during a period and identifies if cash was used to pay creditors or to owners in dividends or re-investment (Ross, Westerfield, & Jordan, 2020). The cash flow statement can be a direct reflection of the strategy of a company, as the corporate strategy and cash flow can be linked because how the cash flows shows how they are delivering on their priorities and strategies. This can also help you understand how the company operates, and what they have been doing in past years, which can be indicators of what they may do in years to come. The three primary sections of the statement of cash flows are the operating cash flow, the investing cash flow, and the financing cash flow. Each section shows activities related to the title. For instance, operating cash flow will reflect the cash from operations or operating activities, investing cash flow can show cash taken in from investing or investment activities, and financing cash flow will reflect the financing activities.

This statement can be telling while looking at past years what a company does with a positive cash flow, do they pay out dividends to stockholders or do the invest in other assets? The way the company handles its cash flow, more than just the balance of cash, can be an indicator of the company’s flexibility and overall financial performance (Kenton, 2019). If one were to be analyzing a company, or considering investing, it would be very telling the amount and uses of cash. The statement also reflects the sources of cash so one could understand potential future flows. For instance, if the company is in an industry that is continuing to grow, and cash flow from operating is increasing year over year it would be safe to assume future cash flow from operating would increase. If the company is seeing a decline in cash flow from operating activities, and maybe it’s in an industry that is slowly declining then it would be an assumption that there would be continued decrease in cash flow from operating. Then it would be telling if there are cash flows in or out from investing and financing that would impact overall cash balances.