Question

identify the purpose and content of the statement of cash flows identify the major types of financial ratios and what they mesure

Answer 1

• Cash flow statement is a statement which is prepared to know the position of cash on a particular date along with the details of inflow and outflow of cash from different activities of business.
• For the purpose of cash flow, all the flow of cash in business is divided into three categories/activities, which are as follows :-

1. Cash flow from Operation or Operating activity.
2. Cash flow from Investing activity.
3. Cash flow from Financing activity.

• Financial Ratio are used to compare two financial variable/factor to identify a relation between them. Basically they are used to compare the financial performance with other industries and other competitors. There are various financial ratios which are used to compare financial data And most common financial ratio are as follows :-

1. Current ratio = Current Asset/Current liability, this ratio is calculated to know available current asset to meet out current liability.
2. Liquid Ratio = Liquid Asset/Current Liability, this ratio is used to know the available liquidity of business to settle current liability.
3. Debt to Equity = Debt/Equity, this is calculated to know the indebtness of business in comparison to shareholder's fund.

• Apart from these ratio, there are many other financial ratio as well to compare financial data of business so that we compare the performance of business with others.