The cash flow statement provides more objective information about all of the following, except
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A. B. C. D. E.E
In this case balance sheet data must be used to determine the answer.
The cash flow statement is an essential financial statement that provides information about the cash inflows and outflows of a company during a specific period. It helps in understanding how a company generates and uses its cash resources. While the cash flow statement provides objective information about various aspects of a company's financial activities, it does not provide detailed information about the amount a firm can be leveraged.
Let's go through each answer choice and analyze whether the cash flow statement provides objective information about it:
A. Trends in cash flow components: The cash flow statement presents information about the major cash flow components, including operating activities, investing activities, and financing activities. By examining these components over time, one can identify trends in the cash flows of a company. Therefore, the cash flow statement does provide objective information about trends in cash flow components.
B. Management decisions regarding financial policy, dividend policy, and investment for growth: The cash flow statement indirectly provides insights into management decisions. For example, through the operating activities section, it reveals how efficiently the company manages its working capital and generates cash flows from its core operations. Additionally, the financing activities section may show whether the company has raised funds through debt or equity issuance, indicating its financial policy. However, the cash flow statement does not explicitly provide information about dividend policy or investment decisions for growth. These aspects are typically found in other financial statements or management disclosures. Therefore, the cash flow statement does provide some objective information about management decisions but not specifically about dividend policy and investment for growth.
C. A firm's ability to generate cash flows from operations: The cash flow statement provides a dedicated section for operating activities, which shows the cash generated or used by a company's core business operations. This section includes information on cash receipts from sales, payments to suppliers, employee wages, and other operating expenses. By analyzing this section, one can assess a firm's ability to generate cash flows from its operations. Therefore, the cash flow statement does provide objective information about a firm's ability to generate cash flows from operations.
D. Cash consequences of investing and financing decisions: The cash flow statement includes sections dedicated to investing activities and financing activities. These sections provide information about the cash inflows and outflows resulting from investment and financing decisions made by the company. The investing activities section shows cash flows related to the purchase and sale of long-term assets, such as property, plant, and equipment, as well as investments in other companies. The financing activities section presents cash flows from borrowing or repaying debt, issuing or buying back shares, and paying dividends. Hence, the cash flow statement does provide objective information about the cash consequences of investing and financing decisions.
E. The amount a firm can be leveraged: The cash flow statement does not directly provide information about the amount a firm can be leveraged. The level of leverage typically relates to a company's capital structure, which is more prominently analyzed through the balance sheet and the income statement. The cash flow statement focuses on the movement of cash rather than the specific level of leverage. Therefore, the cash flow statement does not provide objective information about the amount a firm can be leveraged.
In summary, the cash flow statement provides objective information about trends in cash flow components, a firm's ability to generate cash flows from operations, and the cash consequences of investing and financing decisions. However, it does not provide detailed information about the amount a firm can be leveraged. Thus, the correct answer is E.