Cash Flow Statements form an integral part of the financial statements. However, many readers tend to under-emphasize this statement, believing that the Income Statement and the Balance Sheet holds the key to their answers
This article is to briefly explain the reasons for the needs to understand the importance of the Cash flow statements.
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THE IMPORTANCE OF UNDERSTANDING THE CASH FLOW STATEMENT: |
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Management can manipulate accounting profits using creative accounting but cash flow statements reflect straightforward company’s transaction on cash basis. |
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The cash flow statements tracks the MOVEMENT OF CASH through the business over a period of time ( say a 12 month period). [ In the Cash Flow Statement, it traces the cash balance at the beginning of the period, add or minus whatever involves the movement of cash to derive the ending cash balance.] |
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Its shows how the business how much cash has been spent whether on its operations, investing and or financing activities |
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Just imagine that a Cash Flow Statement is your own cash book where all the ins & outs were shown for a certain period of time. |