take a close look at the three major breakdown of The Statement of Cash Flow inc
ID: 2734573 • Letter: T
Question
take a close look at the three major breakdown of The Statement of Cash Flow including Cash Flow Generated from Operating Activities, Investing Activities and Financing Activities. Each category has its own subtotaled named "Net Cash". Positive net cash represents positive cash inflow generated from each activity for a period whereas negative net cash reduces a firm's overall cash flow position for the period. Is it good or bad? In the eye of financial people, it is necessary to take one more step by looking closely into each category to better assess a firm's cash flow position. In other words, negative net cash does not necessary means a bad thing, whereas positive net cash does not necessary means a good thing. But how so?
Explanation / Answer
Cash flow is that statement of an organisation which gives the true result of how the comany has generated the cash and how the copany has spent the cash over the accounting period. Cash flow statement refers many things about the company, it tells us that how the business has generated ir used money in its day to day business activities, it also tells us that how the cash has been used or generated through investing activities of the organisation. It alse tells us whether company has issued any stock, issued any debt or paid any didvidend this can be known through financing activities. This some time not 100% correct to say that when company has negative cashflow that means company is not doing good, this may have many things to interpret one such thing might one can infer is that the negative cash flow might had happended due to payment of long term debts or may be company has repurchased its own stock. now againone must have to see that thriugh which activities the majority of negative cash flow us generating, if it is happening in operating activities that may mean that company might be not encashing its accounts receivable to the fullest, or company might have paid creditors alot while not getting paid from debtors. Inventory holding might have increased significantly over last years. If investment activities are showing negative cash flow than that means company might have invested heavily, or company might have purchased some heavy equipment, in case if financing activities are showing negative cash flow one can infer that company might have paid dividend, might have repurchased stock, might have paid debts. hence one muist read the cash flow statement alomg with income statement and balance sheet to get the correct picture of company's financial health.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.