Financial Assessment Task -Case Study 5

Financial Assessment Task -Case Study 5

Question: 1 What is included in cash?

Cash flow financial statement explains the revenue inflow and examines the outflow of expenses resulting from investing, operating, and financing activities at any specific time period. Cash flow statements defines business plans in regard of cash and out of business, it takes place without the adjustment of accrued expenses and revenues, moreover, cash flow statements do not determine the profitability of a business, it explains the plans or results (WATERS 1992).

Cash flow determine the three components, these are the core components of any cash flow it includes, financing, investing and operations. Cash flow from operations determines the cash inflow and outflow, which takes place by the core business operations, the operation component reflects the cash flow, which is generated from company's services and products. Normally, accounts receivable, depreciation, cash and accounts payable are the part of cash flow from operations.

Investing activities includes purchasing of long term assets of a company which require production and selling of products, it also covers the selling of long term assets. It covers the change in assets, investments and equipment related investment from cash.

Financing activities, involve cash inflow from investors, such as shareholders and banks, it also covers cash outflow provided to shareholders, which includes dividends that helps in generating income. Moreover, other activities which affect the long term equity and liabilities of company also incorporated in financing activities of cash flow statement (KEEGAN 2011).

Cash flow play a vital role in any company financial statement it helps in predicting future cash flow, it assist in preparing budget, investor analyzes the cash flow for identifying the financial health of a company. Generally, cash is available for business operations show a better position of company. Many times negative cash flow depicts the growth strategy of a firm as it defines the expansion of operations (Martin 2008).

Question: 2

There are certain ways in which, cash flow is similar to income statement, income statement determines the profit and loss of an organization, and it deals with the revenue and financial cost of firm. Moreover, cash flow include depreciation in investing activity, income statement also covers the area of depreciation by considering at as an expense. Cash flow represents the different cash periods classified as investing, operating and financing activities. Company define and presents its cash flow from investing operating and financing activities, in a particular manner in which it is most appropriate, cash flow classification with respect to activity determines the information, that helps users to analyze the effect of those activities on financial performance of a company and its cash equivalents. The information extracted from income statement and cash flow can help in providing the relationship of different activities (JAY 1972).

B) Different from the income statement?

Cash flow is different from income statement, it is use to serve different purposes, income statement provides the illustration, whereas cash flow explains the cash generation from different activities of company including operating, investing and ...