Question

Why financial statement users generally unfavorably view negative cash flows from operating activities, but may view positively negative cash flows from investing and financing activities

Answer 1

Solution:

Financial statment user unfavorably view negative cash flow from operating activities because it represents either company is in loss or if company is in profit, they are not able to collect their revenues timely customers. Further if operational cash is negative then company cannot expand further as company will always in finacial crunch. That's why financial statement users view negative cash flow from operating activities unfavorably.

Financial statment users view negative cash flow from investing and financing activities positively becasue, negative cash flow in investing activities represent company has done heavy capital expenditure to expand the business or idle funds were invested to earn return by making investment. Further negative cash flow from financing activities represents that company paid dividend, settled the long term liabilities and debt burden reduced on the company. Therefore negative cash under investing and financing activities are postive sign for financial statement users.