Principles of Finance

Cash flow statement is a financial statement that summarizes a firm 's sources and uses of cash over a period of time , usually a year . It shows how changes in the income statement and balance sheet affect the firm 's cash position and the whole analysis is broken into operating , investing and financing activities . Cash flow statements indicate to an investor how much money has flown in and out of a business over the specific time period and helps in determining the short-term viability of the business , in particular its ability to pay

its creditors . It also shows how much money was spent on items that do not appear on the income statement such as the payment of cash dividends . A cash flow statement also helps in predicting future cash flows which is a great help in budgeting . A cash flow statement is like a snapshot which quickly shows if there has been any change in the efficiency of any revenue generating processes within the company . The changes in the position of cash then signal that appropriate course of action should be taken by the business in to continue operating successfully in the future

In constructing a cash flow statement , the income statement and balance sheet are needed

If depreciation is increased from 50 ,000 to 100 ,000 , it will not affect the cash flow . This is because depreciation is a non-cash item If the indirect method is used to calculate the cash flow , depreciation is added back to...