Statement of Cash Flows: Importance and Clues

All about Statement of Cash Flows

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Question

The statement of cash flows provides us with important clues on all of the following except:

Answers

A. Financial practices of management.

B. Projected changes for the following year in current liability accounts.

C. Feasibility of financing capital expenditures.

D. Ability to meet debt service requirements.

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Explanations

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A. B. C. D.

The statement of cash flows is very informative and can tell you a lot about a company. However, it does not tell you the direction the company is heading as far as its near term liquidity. It can not be inferred that because a company has a lot of cash flow that its payable balances will decrease in the followingyear. There could be many reasons for holding excess cash including business seasonality and potential acquisitions.

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