Analysis of Cash Flow Statement

Topics: Cash flow, Cash flow statement, Balance sheet Pages: 7 (2333 words) Published: February 20, 2013
Analysis of Cash Flows Statements

By Song Hanxiao
Pace University – New York Campus
MBA 640, 72052
Fall 2011
John Paul
Required Research Paper

Abstract --------------------------------------------------------------------------------------------------------3| I. Introduction of importance of Cash Flows statements -------------------------------------4| II. Function of Cash Flow Statements -----------------------------------------------------------5| III. Analysis of Cash Flow Statement ------------------------------------------------------------7| 1. Analysis of Repayment Ability ----------------------------------------------------------7| 2. Analysis of Payment Capacity -----------------------------------------------------------8| 3. Analysis of Profit Ability -----------------------------------------------------------------9| IV. Conclusion -------------------------------------------------------------------------------------10|

In the context of this paper, first it introduces the importance of cash flow statement and in the second section it tells the function of cash flow statements. And the most important part is analysis of cash flow statements through several evaluation methods. And at the last section , this paper conclude some problems which should be focused on when analyzing cash flow statements. Key words: cash flow statement, ratio, inflows, outflows, operating, investing, financing activities

I. Introduction of importance of Cash Flows statements
The statement of cash flows is one of the main financial statements. It organizes and reports the cash generated and used in the following categories: operating activities, investing activities, financing activities, supplemental information. It objectively describes the expense and collection in one company’s accounting period and cash inflow and outflow from certain economic activities and affirms the inflows and outflows in a certain period according to the fact that whether the company received or paid the cash. Cash consists of paper currency and coins. And cash equivalents are any assets that can be converted quickly into cash. However, companies’ revenues include accounts receivable, which is book value reflecting on Income Statement. So it is obvious to see that there is some difference between companies’ interests and cash flows, especially on these days when market competition is more and more fierce, some corporations have large percent of accounts receivable while seeking to expand their market shares and improve their competition to provide credit for buyers. On the other side, some corporations’ products do not have much competition which leads to a great amount of inventory, and what is worse, the companies run short of money, and profits become lower and lower. Some corporations manipulate interests by abusing accrual basis, for example, some corporations sell their assets to related corporations by a price which is higher than one reasonable market price using related transactions to increase profits which actually not exist. But cash flows cannot be trumped up. So to sum up what is said above, cash flows can provide companies’ present period cash inflows, cash outflows and balance. Also cash flows can reflect the increasing and decreasing of cash when companies are doing financing activities, investing activities and operation activities. So investors and internal managers can use cash flows to evaluate the corporations’ current and future liquidity and payment ability, so the net cash flow which cash flow statement reveals is more objective and more persuaded to prove situation than that income statement reveals. The information cash flow statement reflects plays an important role at the aspect of coordinating all kinds of financial relationship and organizing financial activites. II. Function of Cash Flow Statements...
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