ACC week 3

ACC week 3

Discuss how the statement of cash flows integrates into the above six steps of analysis. As a complement to the balance sheet and the income statement, the statement of cash flows is an informative statement for analysts for the following reasons:

• Analysts who understand the types of information this statement presents and the kinds of interpretations that are appropriate find that the statement of cash flows reveals information about the economic characteristics of a firm’s industry, its strategy and the stage in its life cycle.

• The statement of cash flows provides information to assess the financial health of a firm. Analysts increasingly recognize that cash flows do not necessarily track income flows. A firm with a healthy income statement is not necessarily financially healthy, and vice versa. Cash requirements to service debt, for example, may outstrip the ability of operations to generate cash.

• The statement of cash flows highlights accounting accruals, which can provide insight into the overall sustainability and quality of a firm’s reported earnings.

Discuss how the statement of cash flows integrates into the above six steps of analysis. As a complement to the balance sheet and the income statement, the statement of cash flows is an informative statement for analysts for the following reasons:

• Analysts who understand the types of information this statement presents and the kinds of interpretations that are appropriate find that the statement of cash flows reveals information about the economic characteristics of a firm’s industry, its strategy and the stage in its life cycle.

• The statement of cash flows provides information to assess the financial health of a firm. Analysts increasingly recognize that cash flows do not necessarily track income flows. A firm with a healthy income statement is not necessarily financially healthy, and vice versa. Cash requirements to service debt, for example, may outstrip the ability of...

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