Chapter 21 discusses the theory and practice behind the preparation of a statement of cash flows; however, it’s also critical that we learn how analysts examine and interpret the statement of cash flows to assess a company’s performance and condition. Please discuss the following:
What do the results of the three classifications of cash flows reveal about a company?
Operating (suggested topics of discussion below):
Positive or negative operating cash flow.
Development/growth of a company.
Unprofitable operations.
Ability to meet short term financial obligations.
Investing (suggested topics of discussion below):
Heavy investing for future growth.
Performance of existing investments.
Financing
Which financial ratios can be derived from the state of cash flows and what do they reveal about a company?
Please discuss any other methods of analyzing a statement of cash flows to assess a company’s performance and health.