. Some Analysts Believe That the Statement of Cash Flows Is the Most “Telling” Financial Statement. Please Explain Why?

1. Some analysts believe that the statement of cash flows is the most “telling” financial statement. Please explain why?

The statement of cash flows provides vital information about company cash inflows and outflows. It reports sources and uses of cash for an entity. It also bridges the gap between one balance sheet and the next. The cash flow statement provides decision makers an explanation as to how the financial position has changed during the reporting period. The cash flow statement provides answers to questions such as: What bought about the changes in financial position? Why did plant and equipment go up and investments went down? Why did short-term debt decrease and long term debt increase? Decision makers can trace through changes in financial position with the statement of cash flows. Even thought the income statement provides an explanation as to why the financial position of the company changed, the cash flow statement provides a comprehensive look at the changes in financial position during the period. Decision makers can assess the adequacy of an entity’s cash for future needs and in projecting future cash inflows and outflows through information gathered from the cash flow statement. In assessing the cash flow statement analyst can determine if a company is generating enough cash from normal operations to continue operating and to pay its creditors. They can also determine if the company is generating sufficient cash for future expansion or if the company is generating sufficient cash to pay future dividends.

2. What are the components of the statement of cash flows?

The statement of cash flows classifies cash receipts and cash payments as operating, investing, and financing activities. Transactions and other events characteristic of each kind of activity are as follows.

1. Operating activities include the cash effects of transactions that create revenues and expenses. They thus enter into the determination of net income.

2. Investing...