Question

Provide and example of a real world cash flow statement and what insights you can gather about the company's financial well being from that cash flow statement

Answer 1

Cash flow statements are providing us with an insight about the cash surplus and cash deficit of the company and they will be providing reflection of the Liquidity which is available on the hands of the company and they will also help the company to have a flexibility and an additional mode of internal financing also.

When we will be estimating about the cash flow surplus of a company, we can take the example of the APPLE which have highest amount of the cash reserve for any company in the world and these high amount of cash surplus will be helping the company in order to make better decisions and invest into better projects and have flexibility in their own hands, it will also help in managing upon their financials and operations in a better manner and they can also lower their cost of capital.

For a company with a lower cash flow, it will be very difficult to survive in the long run as we have seen in the case of many companies which have gone bankrupt like JCPenney and Diwan housing finance which do not have high cash in their hands because they have mismanaged their financial and they have not adequately manage their duration gap so there is a low liquidity in their hands and they have a risk of financial bankruptcy always.

Hence, it can be said that the cash flow statement will be providing us about the liquidity position of the company and mode of internal financing in order to have a merger and acquisition or take various flexible decision according to the need of the company if the company is having a higher amount of surplus..