Quiz 14: Statement of Cash Flows
Purpose of Statement of Cash flows: Statement of cash flow is a valuable tool for investors, creditors and internal managers. Internal managers normally use this statement for forecasting, and others use it to answering the following questions: (a) Whether the company has sufficient cash inflow from operating activities. (b) Is the company capable of paying back its debts (c) Whether the company has sufficient funds to pay dividends. (d) The reasons of difference between net income and net increase / decrease in cash. (e) Funds required by the company for investments of company's expansions.
Use the general guidelines for analyzing how changes in noncash balance sheet accounts affect net income on the statement of cash flows provided in the chapter. The increase or decrease in accounts can be calculated by subtracting the ending balance from the beginning balance. The net cash provided by operating activities is computed as follows: