Cash_flow_statements

What does a cash flow statement present information about?

What does a cash flow statement present information about?

A cash flow statement presents information about the cash flows associated with a company's main operations and its investing and financing activities.

How is cash flow information useful?

Cash flow information clarifies the dynamics of short-term liquidity and long-term solvency, and is essential for economic decision models.

What is the difference between cash flow and profit?

Cash flows represent factual details of incoming and outgoing cash, while profit is derived from professional judgment and not a direct projection of objective economic data.

What do liquidity and solvency refer to in relation to cash flows?

Liquidity refers to the nearness to cash of assets, while solvency relates to future availability of cash to settle financial liabilities.

What key components are included in constructing a cash flow statement?

Cash flows from operating activities, investing activities, financing activities, net change in cash during the period, and beginning cash balance.

What distinguishes the direct method from the indirect method for operating cash flow?

The direct method shows the major categories of gross operating cash inflows and outflows, while the indirect method adjusts net profit for differences to determine net operating cash flow.

What are investing activities in a cash flow statement?

Investing activities relate to the acquisition and disposal of long-term tangible and intangible assets and other investments.

What types of activities are encompassed within financing activities?

Financing activities include changes in the size and composition of contributed capital and financial debt, such as issuing new shares or bonds and repaying loans.

Why is it important to classify balance sheet movements as inflows or outflows of cash?

Classifying movements helps determine the effect of changes in assets, liabilities, or equity on the cash position of the company.

What does IAS 7 encompass regarding cash flow statements?

IAS 7 establishes the standards for how to prepare cash flow statements by identifying and presenting cash flows from operating, investing, and financing activities.