Cash Flows Offers Insiders And Outsiders Insight Into Business Fluidity

829 Words Sep 26th, 2015 4 Pages
The statement of Cash Flows offers insiders and outsiders insight into business fluidity. For example, for an insider the Cash Flow Statement is a tool to ananlyze “dividend policy, cash generated by operations, and investin and financing policy” (394). For an outsider, the Cash Flow Statement assist in analyzing “a firm’s ability to increase dividends, it’s ability to pay debt with cash from operations” and the relation between cash from operations with cash from financing (394). Cash Flow Statements are better short term indicators of performance than income statements. Unlike Incoe Statements, Cahs Flow Statemetns allow analyzers to see the difference between actual exchange of cash, liquidity, than the exchange of non-monetary assets. This is important for two reasons, first we can see if a company is equipped to handle sudden unforeseen events with current assets. A current asset being an asset that can become liquid in a short period (Morning Star, 2012). Second, the Statement of Cash Flows shows how a firm operates on liquid basis. We can see how cash is received and handled from a short term perspective (Morning Star, 2012).
To better understand the importance of the Statement of Cash FLows we will examine three companies and compare their activity. First, we have Yum Brands Incorporated, a company that focuses on the restaurant service industry (pg. 435). Brands such as KFC, Pizza Hut and Taco Bell are domestic companies operated by Yum Brands Incorporated (pg.…
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