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Companies tend to be involved in a variety of operations. Therefore, cash flow statements often address four major areas: investing, operating, financing activities, and supplementary or additional information (Klammer, 2018). This is the basic report as it reflects the company’s activities related to the production and distribution of its products and services. The other aspects mentioned above are not mentioned in all statements as some companies are not involved in certain operations (for instance, financing). In order to calculate operating cash flows, it is necessary to add net income, non-cash expenses, and working capital changes.
Investing activities are associated with capital assets and the corresponding operations. Since there is no strict guidelines and standards as to estimating assets, companies tend to choose different items as their assets (Robinson, Henry, Pirie, & Broihahn, 2015). Therefore, it is essential to review this aspect in detail when comparing organizations’ reports. Financing activities display firms’ operations with stock, as well as debt financing. Additional information is related to reporting the operations with various things without cash use. Income taxes and interest paid are included in this report.
Different people and groups benefit from reviewing cash flow statements (Atrill, McLaney, & Harvey, 2014). For example, accounting professionals need these documents to estimate whether the company can cover its current expenses. Creditors also need to analyze cash flow statements in order to make a decision and evaluate the companies’ ability to pay back. Investors need these reports to understand whether the company they are interested in can be competitive. Clearly, shareholders need to look into cash flow statements to evaluate their potential gains. Finally, employees and partners can also benefit from reviewing these documents as these groups will understand whether the company can pay for the provided services.
References
Atrill, P., McLaney, E., & Harvey, D. (2014). Accounting: An introduction (6th ed.). Melbourne, Australia: Pearson Higher Education AU.
Klammer, T. (2018). Statement of cash flows: Preparation, presentation, and use. Durham, NC: John Wiley & Sons.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial statement analysis workbook (3rd ed.). New York, NY: John Wiley & Sons.
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