Reasons Why Liquidity Will Decrease

Below are some reasons why a company's liquidity can decrease. They are organized according to the format of the statement of cash flows.

Operating activities
Net loss from the business operations
Accounts receivable increased
Inventory increased
Prepaid expenses increased
Accounts payable decreased

Investing activities
Capital expenditures (purchase of equipment, etc.)
Purchase of long-term investments

Financing activities
Repayment of short-term and long-term debt
Declaring dividends for stockholders
Purchase of treasury stock
Sole proprietor's or partners' draws

Since the above items will have an unfavorable or negative effect on a company's liquidity, the respective amounts will appear on the SCF in parentheses.

Reasons Why Liquidity Will Increase

Below are some reasons associated with an increase in a company's cash and liquidity. The reasons are arranged according to the format of the statement of cash flows.

Operating activities
Net income from the business operations
Accounts receivable decreased
Inventory decreased
Prepaid expenses decreased
Accounts payable increased

Investing activities
Proceeds from the sale of assets used in the business
Proceeds from the sale of long-term investments

Financing activities
Short-term and long-term borrowings
Proceeds from issuing shares of common and preferred stock
Proceeds from sale of treasury stock

Since the above items will have a favorable or positive effect on a company's liquidity, their amounts will appear on the statement of cash flows as positive amounts.