- It provides additional information to shareholders to the income statement and balance sheet
- It relates to the cash flow position and changes in it which is important to the survival/growth of the business.
- Explains why the profit figure is different to the cash and equivalents figure.
The exam could ask questions like analyse the position of the business based on its cash flow, here are some things to include:
Look at purchase of non current assets... if they have purchased more, could this mean the business is expanding?
Look at the shares issued: if they have a surplus of money the business again looks like it could be expanding.
Can the business afford to pay its dividends?
Does the inflows cover the outflows?
Is there something like loan interest that is making the business spend a lot of money?
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