A cashflow statement outlines the fluctuation in the cash resource of a company rather than the change in working capital. This includes the cash inflows and outflows of a company within a fiscal period. Unlike the income statement or balance sheet the items recorded in the cashflow statement are different from those recorded in any other financial statements. The beginning and ending balances are adjusted according to the changes which take place within that reporting period. The main purpose for the construction of this financial statement is to clearly identify the changes in cash or cash equivalents for one fiscal year. However, the cashflow statement does not predict future cashflows.
The cashflow statement consists of three basic elements; cashflow from operating activities, investing activities, and financing activities. (Principles of Accounting, 2012) For the managements use the most important is the cashflow from operating activities. Operating activities includes the core function of the company; therefore, it is vital for the company to show positive earnings from this section. This section would give the snapshot image of what the company’s financial position is on its own. It would be a matter of concern for investors and financiers to judge where the company stands and the security of investing or financing the company.
The investors are also going to be interested in the cash generated from operating activities because it would outline the company’s ability to pay dividends and produce profits. However, any investor would not just look at one aspect they would take into consideration about how the cash is being generated or used from the other two sections, as well. The section of financing activities would be of interest as it would show the amount of dividends paid or where the company is actually using their finances.
Reference
Principles of Accounting (11 ed.). (2012). San Diego, CA: Bridgepoint Education.