Cash Flows as the Most Important Statement

Subject: Finance
Pages: 2
Words: 492
Reading time:
2 min

There are several reasons that depict that the cash flow statement is highly important for the investors and company, as it is “a crucial factor that enhances its operations.” In the first place, it offers detailed information about cash inflows and outflows. For example, the section on operating activities reflects not only the revenues but also depicts changes in depreciation. The potential decrease may be considered a positive sign for investors. At the same time, an increase in the investment part of the statement can be discovered as a negative sign due to its impact on the profitability of the company.

Thus, this assumption may be incorrect, as rising cash outflows may reflect the future growth and development of the business. Simultaneously, the cash flow statement depicts the company’s operations in the capital markets and the number of dividends paid to the investors. High dividends paid in a timely manner could be considered as an aspect that will attract investors. Overall, it could be said that in comparison to the income statement, the cash flow statement offers new insights into the company’s operations that can be valuable to investors. A combination of these factors assists in conducting a profound financial analysis while understanding the actual solvency and liquidity. Relying on the income statement solely may lead to wrongful decision-making while the statement of cash flows clarifies the overall image and portrays the actual financial condition of the company.

In the end, the report helped me understand that the cash flow statement reveals the financial condition of the company. The analysis of Woolworths Group’s annual report assisted in depicting that the financial strategy of the company has a clear connection with the inflows and outflows of cash. For instance, the desire to expand while making the prices more affordable is reflected by the rise of the expenditures related to investments and changes in revenues. Meanwhile, the operating, financing and investment activities are highly interdependent due to the circulation of cash between them.

As for the significance of the statements, it was necessary to understand their benefits. On the one hand, an income statement helps acquire a general perception of the company’s financial operations while depicting the main sources of income and describing the principle expenses. With the help of this information, it is possible to assess the financial health of the business. Nonetheless, on the other hand, one cannot underestimate the gravity of the cash flows when evaluating whether the company is favorable for investment. In this case, the cash flow statement supplies potential investors with information regarding the payment of dividends, investment activities, future orientation towards growth, and the actual condition of the company’s income. A combination of these factors underlines the fact that the investors have to combine the information acquired from these statements and use it simultaneously to make an appropriate investment decision.