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Cash Flow Analysis

Cash Flow Analysis

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Published by VIKAS DOGRA

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Published by: VIKAS DOGRA on May 16, 2010
Copyright:Attribution Non-commercial

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10/25/2013

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7
CHAPTER
Cash Flow Analysis
 McGraw-Hill/Irwin© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
 
Statement of Cash Flows
Relevance of Cash Flows
CashDefined
--referstocashandcashequivalents.
Cash equivalents
are short-term, highly liquidinvestments that are (1) readily convertible toknown amounts of cash, and (2) near maturity(typically within 3 months) with limited risk of pricechanges due to interest rate shifts.
 
Statement of Cash Flows
Relevance of Cash Flows
Cash is the beginning and the end of a company’s operating cycle.
Netcashflowistheendmeasureofprofitability.Cashrepaysloans,replacesequipment,expandsfacilities,andpaysdividends.Analyzingcashinflowsandoutflowshelpsassessliquidity,solvency,andfinancialflexibility
.
Liquidity
isthenearnesstocashofassetsandliabilities.
Solvency
istheabilitytopayliabilitieswhentheymature.
Financialflexibility
istheabilitytoreacttoopportunitiesandadversities.

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