Statement of cash flows, As an operating tool, cash flow

Statement of cash flows

Reference no: EM1374827

Statement of Cash Flows

A Statement of Cash Flow is a statement which shown inflow and outflows of cash and cash equivalents of an enterprise through a particular period. It gives information about cash flows, connected with the period's operations and also about the entity's investing and financing activities during the period. Cash flow statement is generally used as a tool of financial analysis which is utilized by the management for short-term financial analysis and cash planning purposes, whereas funds flow statement is needful in planning intermediate and long-term financing. "The Statement of Cash Flows is a change statement summarizing the transactions that caused cash to change through the period (Spiceland et al, 2011). Investors use cash flows numbers to put a value on a company.

The Statement of Cash Flows is important for understanding the true cash flows of the business. It restates the firm's flow of funds from an accrual accounting basis to a cash accounting basis. As such, it removes all non-cash revenues and expenses recorder by accrual accounting in order to see how management has employed resources during the period.

The Statement of Cash Flow indicates the net change in the position of cash and cash equivalents. It is prepared based on past data from Income Statement and Balance Sheet. It classifies and highlights the cash flows into three categories: operating, investing and financing. "This document projects what your business plan means in terms of dollars", "is used for internal planning" and indicates "both how much and when cash must flow in and out of the business" (Safranski and Kwon, 1991).

As an operating tool, cash flow statement gives information about cash generated from operating activities and explanations for the difference between cash from operations and net profit.

Reference no: EM1374827

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