statements of cash flows

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  • 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

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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.

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