Explain why the statement of cash flow provides useful information that goes beyond income statement and balance sheet data?

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justaguide's profile pic

justaguide | College Teacher | (Level 2) Distinguished Educator

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The cash flow statement provides a detailed account of where a company received its funds from and how they were used. A cash flow statement is more useful than just an income statement or data from the balance sheet.

Investors of a company or those who would like to become investors are not interested in just how much income the company is generating. This figure can be manipulated in many ways and in many cases companies that spend more than what they get from their sales are actually able to show profits.

The cash flow statement gives an idea of how the company is spending its funds. This can be used to analyze whether its operations are sustainable in the long term and if the company has the capacity to expand operations that would enable it to earn more in the future. It is also possible to determine exactly how the company got its funds and if it is in a position to pay them back while offering the required returns to the investor.

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ssmedlin | Student, Undergraduate | (Level 1) eNoter

Posted on

 The cash flow statements would by far have to be the most important when dealing with the balance sheet and income statement. It keeps track of money coming and going versus just the money being gained. The cash flow report helps people who are interested in investing determine what the company spends money on and if the current state of the company is long term and doable in the long run. 

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