Importance of Cash Flow Statements versus Traditional Financial Statements (Profit)

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Cash Flow Management > Best Practices > Importance of Cash Flow Statements versus Traditional Financial Statements (Profit)

Importance of Cash Flow Statements versus Traditional Financial Statements (Profit)
brighton banda, Financial Consultant, Zambia, Member
What is the importance of cash flows in comparison to financial statements (profit)?
 

 
Cash Flow versus Financial Statement
Ledja Dhima, Manager, Albania, Member
A financial statement is important because it shows company's profit. Sales minus expenses, equal to gross profit or profit before tax.
However it does not show whether is company is liquid or not (Liquidity). A profitable company is not necessary liquid. Cash flow shows a company's liquidity and tells you (the bank) how the company will generate cash (which sources mostly). The current crisis proved liquidity is the key factor of a company's business continuance.
 

 
Cash Flows versus Profit in Financial Statements
juwele sibanda, Accountant, Zimbabwe, Member
I agree with Ledja, rely on cash flow statement for your daily decisions:
- A profitable company can have serious challenges meeting short term liabilities.
- And a loss making company can still have a strong liquidity.
 

 
Cash Flow versus Financial Statements
sweety
- Income statements describe sales, income, tax and net income.. Separates out operating income (EBIT). Net income does not contain the cash a firm earned.
- Cash flows will tell you the working capital available for business activities. Cash flow describes the liquidity of the firm. It is possible that a firm has lot of assets, a good return on net assets, a good return on equity but still the firm can undergo a shortage of cash!
 

 
Importance of Cash Flow Statement
Javnyuy Joybert, Accountant, Cameroon, Member
The cash flow statement is one of the three most important financial statements a business owner uses.
The concept of cash flow is different from the concept of profit or net income and the business owner should think of BOTH in different terms and analyze each from different perspectives.
There are financial ratios that help the business owner focusing on net profit and those that focus on cash flow.
The cash flow statement shows how much cash comes in and goes out of the company over the quarter or the year.
At first glance, that sounds a lot like the income statement in that it records financial performance over a specified period.
But there is a big difference between the two. So to be able to finance and invest properly and get the required returns, the business owner and investor must take the cash flow statement very seriously.
 

 
Importance of Cash Flow Statement
Juan Jarquin, Financial Consultant, Nicaragua, Member
The Cashflow Statement is vital to determine a company's capacity to generate cash to meet its short term obligations. Is the core business generating cash enough to cover all expenses? Financial Statements sometimes do not show the actual, current, short-term capacity of a company to deal with an investment or loan.
 

     
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