CHAPTER 13, “STATEMENT OF CASH FLOWS”
Posted by: Write My Essay on: December 11, 2017
The statement of cash flow is useful in providing a snapshot of the company’s financial position. With private companies, this can provide a solid benchmark by which to measure a company’s ability to achieve its goals. With a publicly traded companies, it becomes necessary, because the company is obligated to disclose to the public the financial position of the company. This is a solid tool for the investor to figure out what position the company is in, and this will help them to decide whether they should invest in the firm.
Preparing the Statement of cash flow is an important process because it puts the various aspects of the company into perspective. Without the statement of cash flow, it is difficult to put the core profitability of the company into perspective. There are signs that can be gleaned from the cash flow statement that are more difficult on an income statement. The net earnings are an important component, but it can be gleaned from the income statement, as well. The cash flow statement provides the best the clearest, most concise view of the operations of the business.
Issuing common stock is an effective way for a company to secure funds for projects such as expansion. The money the firm receives by issuing common stock provides it will an effective way to increase the amount of money with which the company can work. However, in order for shareholders to become interested in purchasing shares of the company, it needs to be issued dividends. These dividends cost the company money, but in the long run, the firm is often better off by issuing the dividends. Some companies do not need to issue the dividends, because it is an attractive enough stock that it does not need to add an extra incentive for investors to purchase shares of the company.
Issuing shares and providing frequent cash flow statements are very interlinked, because when a company is public, it needs to keep investors updated on the various aspects of the company, so that the shareholders are kept up to speed on the way the company is operating. If the cash flow statements show a steady increase in the amount of money coming in, it can also attract more people to invest in the company, which creates an extra incentive for people to invest in the firm. However, if the cash flow statement shows a decline in the amount of money that the company has, or it shows that it has a negative cash flow, then many people will be disinterested in the firm, and will likely sell shares. Furthermore, people will not be interested in buying shares of the company.
The cash flow statement needs to be up to date as a requirement of the Security and Exchange Commission. Companies are required to issue a quarterly cash flow statement to meet the requirements of being a publicly traded company. This keeps the investors well-aware of what it going on with the firm.