Question

Explain how would you use Statement of Cashflows to evaluate a company's financial performance?

Answer 1

Cash flow Statement helps to show cash and cash equivalent for a specific period.

1) Cash Flow statement helps to evaluate company’s financial performance on the basis of short term planning, on the basis of availability of cash and cash equivalent .It helps the Company regarding investment decision.

2) Cash flow statement helps to evaluate company’s financial performance on the basis of comparative study of actual cash flows with the budgeted cash flows.

3) Cash Flow statement helps to evaluate company’s financial performance on the basis of assessing liquidity and solvency of the enterprise to meet its liability on time.

4) Cash Flow statement helps to evaluate the company’s financial performance to the creditors and investors on the basis of investing and financing activities of an enterpise.

5) Cash flow statement helps to evaluate the company’s financial performance on the basis of reasons of lower and higher cash Flows.Sometimes Company has lower cash balance in spite of higher profit or vice –versa.