The Technology of Cash Flows Essay

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In today’s economy, cash is often considered to be king. This rings true for consumers and companies alike. The flows of a company’s cash are summarized on a company’s statement of cash flows (Gibson, 2011). The cash flow statement provides information regarding the effectiveness of company management in operating the business, how the company’s money is derived, and the way funds are being spent (Megan, Hategan, Caciuc, & Cotlet, 2009). A company’s management uses the statement of cash flows to assist with budgeting as it can predict cash flows in the future (Megan et al., 2009). Additionally, investors use it to assess the financial health of a company (Gibson, 2011; Megan et al., 2009). Technology companies have experienced…show more content…
The significant competition requires continued efforts in innovation and investments in new technologies, products and services (Google, 2014). To keep up with the rapid growth, it maintains a large staff of more than 47,000 (as of the end of 2013) with 39% of its employees in research and development and 32.1% in sales and marketing (Google, 2014). Ultimately, companies are in the business to make money. To do this, they trade goods or services for cash, credit, or other goods and/or services of comparable value (bartering). Although some businesses rely more heavily on cash transactions, businesses would be unable to remain a going concern without long run cash inflows exceeding outflows (Megan et al., 2009). Essentially, the statement of cash flows bridges the gap between accruals and cash flows and allows for the quality of earnings to be evaluated (Ohlson & Aier, 2009). It accomplishes this task by making adjustments to the net income figure from the income statement to add back non-cash related transactions (Gibson, 2011; Megan et al., 2009). As noted by Ohlson and Aier (2009), “cash in a literal sense must have been exchanged for it to have an effect on the statement of cash flows” (p. 1093). Therefore, expenses such as depreciation and amortization that do not involve the use of cash are added

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