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The cash flow statement is one of the most important financial statement that allows investors to know how a company is functioning and where its money is coming from and where it’s spent. Its significance has only risen in the last few years, and it has helped investors to know whether a company is placed well in financial terms. In this article, we shall look at Cash Flow Statement in detail.
Table of Contents
The meaning of Cash Flow Statement can be defined as cash flow statements that exhibit the flow of incoming and outgoing cash. This statement assesses the ability of an enterprise to produce cash and use the cash. This statement serves as a tool for assessing the liquidity and solvency of the enterprise.
It is a financial statement that provides total data, which can be explained as a financial statement that estimates the cash produced or utilized by a firm in a presented time.
This statement provides data regarding the shift in the position of cash equivalents and cash of a firm over an accounting period. The pursuits as per this change is incorporated in investing, financing, and operating.
However, the following points may be noted:
The objectives of CFS are as follows:
The advantages of CFS are enlisted below:
The elements of CFS can be divided into the following:
Cash flow from operating activities-
Operating activities refer to the operations of the company that are directly associated with furnishing its commodities and services to the market place. Operating activities are the main source of revenue and expenditure in an organization.
The operating activities on the CFS has various uses and gets cash from the operational activities of a company. In other words, it reflects how much money the company generated from the products and services.
Cash flow from financing activities-
It covers all sources of cash from banks or investors to the cash used to pay the shareholders. Likewise, a settlement for repurchased stock, payment of interests, and the compensation of debt are recorded under this category.
Cash flow from investing activities-
All the use of funds from a firm’s investment is included in the investing activities. Under this category, sale or assets possession, credit offered to merchants or collected from customers, and payments linked with an acquisition or amalgamation are included.
Cash flow from operating activities is determined through direct or indirect methods.
The process is explained below:
The limitations can be summed as under:
It is quite apparent that Cash Flow Statement is an indispensable means to measure how well a company manages its cash position. Its importance can never be undermined in an organization and for an investor. Therefore proper Cash Flow management should be ensured in an organization for its success in the long run.
Read our article: What is Financial Reporting Services?
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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