Homework Lance
Cash flow is essential as it monitors an organization’s cash inflow and outflow in a financial year. Thisinformation of the cash situation of the firm can not only help businesses or the financial consultant to organize for the present or in the future but also in assessing working capital and the optimal amount of cash required by the organization. According to Das (2018), the operations section of the cash flow statement closes with net cash provided (used) by operating activities, irrespectively determining whether the indirect or direct method is implemented. The cash flow statement is perhaps the most critical information that small businesses can use to understand their financial position besides bank balance.
Cash flow from the operationssegment of the cash flow statement is one of the three-section, including cash flow from investing and finance. This section documents the inflow and outflows of money from the most significant activities undertaken by the organization in one particular time or a financial year. These activities include the cash received from sales and expenses incurred from direct costs and cash paid to fund the working capital. Cash flow from operations examines the cash outflows and cash inflows resulting from the company’s fundamental business activities, as well as the cash earned by its services and goods (Knežević and Mitrović, 2018).
Changes in accounts receivables, cash, amortization or depreciation, accounts payable and inventory are the primary components shown in this statement section. The analyst community closely scrutinizes this area since it demonstrates the feasibility of the company’s operations. In the long run, the business’s cash flow from operations must be net positive if it remains profitable at the net levels (basically, this means that the business should generate a positive cash flow at the end of the financial year) (Eastonet al., 2018).
References
Das, S. (2018). Analysis of cash flow ratios: A study on CMC. Accounting, 4(1), 41-52.
Knežević, S., &Mitrović, A. (2018). Cash flow statement and financial decision-making in insurance companies. Bankarstvo, 47(4), 108-123.
Easton, P. D., McAnally, M. L., Sommers, G. A., & Zhang, X. J. (2018). Financial statement analysis & valuation. Boston, MA: Cambridge Business Publishers.
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