Purpose of Cash Flow Statement
They give information on the sources and utilities of the different cash flows in the company
It gives all the information about cash payments, receipts in a specific period.
It also provides the company's information on the operating, financing, and investing activities.
The cash flow statement determines if a company has enough money for its expenses.
It is also a way of measuring the company's profitability and strength and can be used to determine the company's future (Soboleva et al., 2018).
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Uses of Cash Flow Statement
It can be used to evaluate a company's growth.
It can be used to help the government determining if a company can pay its taxes when they are due for payment.
It can indicate to the creditors of the company is in a position to pay its debts once they have been given loans.
It can be used to determine if the liquidity of a company is improving or going down and this will enable investors to determine their investment in the company.
It is used to plan on how the loans will be paid and other long-term planning of the company's money.
It can be used as a financial statement for a company in an income statement and a balance sheet.
The Three Activities That the Statement of Cash Flows Depicts
The operating activities
The operating activities are the cash activities that are associated with the net income of a company. This includes any cash that comes in from sales of goods and services. Any money paid to suppliers, these are the income and expenses which are also included in the net income. This activity is the most important kind of statement cash flow activities as it gives all the cash flow information in regards to the business's daily activities. The operating activities also allow the stakeholder to assess the company's viability. Through the operating activities, the management of the business can tell the amount of cash the business is generating on daily activity. Most investors would prefer a company generating income from the operating activities and not the other activities, as this will mean that the company is doing well.
The investing activities
The investing activities are cash activities that generate money from the non-current assets such as properties and long-term investments, any cash from a sale of the company's land. All the company's investment, purchase, or sales of a property are in the investment activities (Yashin et al., 2017). The cash flow generated from the investing activities is used to account for the money used in the purchasing of non-current assets, which are used to determine the value of the company in the future. The investing activities are used to determine the aspect of growth and capital of a company. This is what most investors are interested in as it can determine how well a company is doing.
The financing activities
The financing activities include the cash generated from activities that are non-current liabilities and owner's equity. These include the long-term debts and dividend payments and the selling of the company's stock. The purchase of bonds and stock is also included in the financial activities. The financing activities can tell how a company will raise capital and how it will pay its investors back through the capital markets. The activity indicates the net flow of cash in a company, and they give the investors an insight into the company's financial strength. It also indicates if the company is well managed.
References
Soboleva, Y. P., Matveev, V. V., Ilminskaya, S. A., Efimenko, I. S., Rezvyakova, I. V., & Mazur, L. V. (2018). Monitoring of businesses operations with cash flow analysis. International Journal of Civil Engineering and Technology , 9 (11), 2034.
Yashin, S. N., Trifonov, Y. V., Koshelev, E. V., Garina, E. P., & Kuznetsov, V. P. (2017, July). Evaluation of the effect from organizational innovations of a company with the use of differential cash flow. In International conference on Humans as an Object of Study by Modern Science (pp. 208-216). Springer, Cham.
