Please explain why the statement of cash flows does not provide a complete picture of a...

Please explain why the statement of cash flows does not provide a complete picture of a company's financial performance. What information does the statement of cash flows not provide? What additional information would be needed to provide a complete picture of a company's financial performance?

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Expert Solution

The cash flow statement does not provide a comprehensive list of information which is a must to take critical decisions because there are numerous non-cash transactions besides cash transactions whose analysis is missing in cash flow statement.

Cash flow statement does not provide some of the following non-cash information:-

1. Credit sales

2. Credit purchases

3. Lawsuits filed against and for the company and their estimated liability and estimated collection.

4. Unclaimed warranty expenses.

5. Provision for bad debts.

In order to provide complete information, cash flow statements need to consider non-cash information also.

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