b. How can we understand and evaluate the cash position of a company?

Expert Solution

We can evaluate and understand the cash position of the company by analysing the cash flow statement which are a mandatory financial statement to be prepared by different companies and these cash flow statements are are highly organised statement and they would be including various kinds of cash flows like cash flow from operations and cash flow from investing activities as well as cash flow from financing activities so these cash flows will provide a better idea about the management of the company and the overall cash generation ability of the company in the short as well as in the long run.

Management of cash flows are always prioritised by different companies because cash flows are more important than the profits of the company, sowe should always be trying to to invest in those companies who are having a higher amount of cash inflows and who are also having is low amount of cash payables, so this will offer them with high liquidity and lesser of the solvency risk in the long run and it will also offer lesser financial distress cost so overall a high amount of cash would be representative of the better growth structure of the company in the long run and it can maximize over its overall value.

jeff jeffy answered 1 year ago

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