The Statement of Cash flows is a very useful financial statement that can benefit investors, managers and even auditors. The statement of cash flows has not been around as long as the other financial statements such as the balance sheet or income statement. It basically “illustrates the way accounting evolves to meet the requirements of users of financial statements.” (Marshall, 2003)
The statement of cash flows is designed to provide important information about the cash that a company has received or has paid out during a certain time period. It provides a reason for the changes of cash received and paid by a company by taking into account all financing, investing and operating activities of the company during the given time period. So a person who is viewing this statement will be able to figure out why a company lost or gained money during a certain time frame.
Investors will be interested in this because they will be able to decide whether or not it is worth it to buy shares of the company. Managers benefit from this statement because they are able to see whether the company is making money and whether the company’s performance is improving. They can also use this to decide how they may improve the out put of the company, what changes need to be made. Auditors are able to use the statement of cash flows to see exactly what a company did with their money. They are able to dissect where the company received money from, where it invested its money, and what operations the company took part in. So the statement of cash flows is useful for many different people who are involved in a corporation.
Management of a company would probably be most interested in viewing the Operating Activities section of the Statement of Cash Flows. This section pinpoints the exact inventories, liabilities, depreciation and receivables of the company during a certain time period. So managers are able to see what operations are occurring, what type of inventory is on hand and what the assets and liabilities of the company are.
An auditor would be interested in the above section, but just as important would be the Investing and Financing Activities sections. Auditors need to know where the company invested its money and where it received its money in order to figure out whether the company is reporting correctly and keeping the books properly. Investors would be interested in the entire statement of cash flows, they are investing their money so they will want to know exactly what type of operation the company is running.
- Marshall; Accounting: What the Numbers Mean; McGraw-Hill2003, 6th Edition, pp. 309 – 353