Question

Statement of Cash Flows • Why is the statement of cash flows a useful document? • What can creditors, investors, and other users learn from an analysis of the cash flow statement? • What are the advantages and disadvantage of having a large cash balance? • Using the same company that you chose in Week 3, analyze and report on the statement of cash flows. (Comment on operating, investing, and financing activities) Initial post due by Wednesday. [Remember to include at least one scholarly source in your post or comments. Source must be cited in-text and full reference listed at the end of the post, both in APA format]

Answer 1

answer 1

The statement of cash flows is a useful document because it is the only financial statement where the analyst can learn about cash generation in the firm. A positive net income figure on the income statement is ultimately insignificant unless a company can translate its earnings into cash.

answer 2

The Cash Flow Statement allows investors to understand how a company's operations are running, where its money is coming from, and how money is being spent. The Cash Flow Statement is important since it helps investors determine whether a company is on a solid financial footing.

Creditors, on the other hand, can use the Cash Flow Statement to determine how much cash is available (referred to as liquidity) for the company to fund its operating expenses and pay its debts.

answer 3

ADVANTAGES

Improved Cash Flow

A large cash balance helps a business manage its cash flow. Even if revenue drops temporarily or is delayed, the business will still have enough cash on hand to meet its obligations such as loan payments and payroll. The large cash balance acts as a buffer and requires less active management, which means financial officers have more time to spend on other tasks.

Less Borrowing

With a large cash balance, a business doesn't need to borrow money as often. Besides borrowing to make up for cash flow problems, businesses without large cash balances also borrow to make day-to-day purchases. All of this borrowing adds up and costs the business in the form of interest. With a large cash balance, money is available for operational purchases without the need to borrow. Fewer loans and less use of credit cards save money and put the large cash balance to good use.

DISADVANTAGES

Interest

In addition to the money it saves, a large cash balance can also be a source of additional revenue for a business by earning interest. In order for the cash balance to remain a liquid asset, it must remain in an account that is always accessible, which limits the amount of interest it can earn. Compared to the interest a business would otherwise pay to borrow money, the interest it earns on a large, idle cash balance is especially a loss of opportunity cost.

Limited Growth

The only real disadvantage to a large cash balance is the fact that money in the bank limits a business's ability to grow. While it makes sense for a business to maintain some liquid assets, the rest of its income can usually go to more profitable use by strengthening the company or paying for expansion. Instead of adding to a large cash balance, money can go toward increasing payroll to hire more and better workers, toward paying down debt or into investments that will pay off in the future. A cash balance is more secure but does little to help a business grow until it can be put to use.

answer 4 sorry i dont know which company you chose in week 3 to analyse the cash flow statement and comment upon it.

source used to answer is investopedia

link-https://www.investopedia.com/investing/what-is-a-cash-flow-statement/#:~:text=The%20CFS%20allows%20investors%20to,how%20money%20is%20being%20spent.&text=Creditors%2C%20on%20the%20other%20hand,expenses%20and%20pay%20its%20debts.