What information does a statement of cash flows give a financial reader?

Question

Question is:

What information does a statement of cash flows give a financial statement reader that an income statement and balance sheet do not provide?

Thank You

Answer 1

Extract from IAS 7 Cash Flow Statements

Information about the cash flows of an enterprise is useful in providing users of financial statements with a basis to assess the ability of the enterprise to generate cash and cash equivalents and the needs of the enterprise to utilise those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an enterprise to generate cash and cash equivalents and the timing and certainty of their generation.

Benefits of Cash Flow Information

4. A cash flow statement, when used in conjunction with the rest of the financial statements, provides information that enables users to evaluate the changes in net assets of an enterprise, its financial structure (including its liquidity and solvency) and its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities. Cash flow information is useful in assessing the ability of the enterprise to generate cash and cash equivalents and enables users to develop models to assess and compare the present value of the future cash flows of different enterprises. It also enhances the comparability of the reporting of operating performance by different enterprises because it eliminates the effects of using different accounting treatments for the same transactions and events.

5. Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash flows. It is also useful in checking the accuracy of past assessments of future cash flows and in examining the relationship between profitability and net cash flow and the impact of changing prices.

Answer 2

There are a lot of strange things that can be done to juice income for a company in bad shape. Things like reducing a reserve account and slowing depreciation can improve income without generating any cash leaving a company with huge income but unable to pay it's bills. You need to know whether the cash that is coming in is from operations or from selling assets. You also need to look at where tha cash is going, like to acquire long term assets or to pay down debt or pay current bills.

Answer 3

the cash flow is a backup for the icome statements, its to make sure that everything is going right and nothing/ no money has been tampered with or there is any fraud going on!

Answer 4

extremely tough stuff. research on google or bing. just that will help!