- Created by: s.tread
- Created on: 05-12-19 14:18
BENEFITS OF STATEMENTS OF CASH FLOWS
· They can help shareholders to assess cash position (liquidity) of the business
· They show shareholders where cash has come from and where spent
· They provide some information not in the income statement or statement of financial position
The importance of liquidity:
· Cash is essential to short-term survival of the business. If it cannot pay its running costs, the company can be placed into administration.
· It could affect the level of dividends
· It may indicate whether the company can afford future expansion
LIMITATIONS OF STATEMENTS OF CASH FLOWS
· Shareholders also need to use income statements (to assess profitability) and statements of financial position (to assess liquidity and gearing)
· Like other financial statements, they are historical and do not always indicate what will happen in the future.
· Like other financial statements, many items are summarised and do not provide detailed information.