The statement of cash flows is essentially the amount of cash the company has earned over a specific time period (usually a quarter of a year or annually). Obviously, the more cash the company has earned, the better the company is doing financially and in common terms is a more successful company.
Statements of cash flows are important within the company to monitor company growth or progress. Cash flow statements are important outside the company mainly to investors interested in buying stock or shares of stock in the company. Usually, statement of cash flows are looked at to view the company's expenses, the gross income, and the net income. The more income a company creates, the higher quality the company is, and investors feel safer investing their money because they know the business model the company is using is appropriate for growing both the company, and the investors' money.
A company can have profits and no cash if the expenses of the company equal the amount of cash generated. There will be profits technically speaking, but the expenses will equal and the company will not have any NET cash. Furthermore, if the profit is in terms of a non-liquid value, for example the appreciation in value of a house, than there is profit but not in the form of cash.
Dec 13th, 2014
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