Statement of Cash Flows
The statement of cash flows is a relatively new financial statement in comparison to the income statement or the balance sheet. This may explain why there are not as many well-established financial ratios associated with the statement of cash flows.
We will use the following cash flow statement for Example Corporation to illustrate a limited financial statement analysis:
The cash flow from operating activities section of the statement of cash flows is also used by some analysts to assess the quality of a company's earnings. For a company's earnings to be of "quality" the amount of cash flow from operating activities must be consistently greater than the company's net income. The reason is that under accrual accounting, various estimates and assumptions are made regarding both revenues and expenses. When it comes to cash, however, the money is either in the bank or it isn't.
To learn more about the statement of cash flows, go to:
- Explanation of Cash Flow Statement
- Quiz for Cash Flow Statement
- Crossword Puzzle for Cash Flow Statement
Additional Information and Resources
Because the material covered here is considered an introduction to this topic, many complexities have been omitted. You should always consult with an accounting professional for assistance with your own specific circumstances.