What are the three sections of a financial statement? What specific information does each section convey,...

What are the three sections of a financial statement? What specific information does each section convey, and which one of the three sections should the most cash flow be generated and why?

Expert Solution

Solution :

There are three major financial statements - Balance sheet, income statement, cash flow statement.

The three sections of the cash flow statement are -

Cash flow from operating activities: This section tells how much cash flow the company has generated (or spent) due to the regular operations

Cash flow from investing activities: This section tells how much cash flow the company has generated (or spent) due to the CAPEX investment, sale /purchase of assets

Cash flow from financing activities: This section tells how much cash flow the company has generated (or spent) due to the selling of bonds, dividends, share repurchase, etc.

Ideally out of these three sections, Cash flow from operating activity should generate the maximum cash flow because this is the primary activity of the organization and this should generate the maximum cash for the company. Cash flow from investing and financing are either negative or less.

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