FMA 2 of 5: Statement of cash flow and its importance in decision making

Statement of cash flow and its importance in decision making
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Statement of cash flow and its importance in decision making
Statement of cash flow shows the flow of cash for a particular period of time. It is an important aspect in business decision making because it is used in analyzing financial performance and activities of a business. This is what makes statement of cash flow vital in decision making. It provides the financial picture of what business has been doing with its available cash for a period of time. This paper seeks to describe statement of cash flow and its importance in decision making (Lasher, 2011).
Decision making in business requires financial ratios which are calculated from statement of cash flows. These ratios are used when making decisions by management, suppliers, investors and lenders. Statement of cash flow provides effective position of business for decision making in relation to liquidity of the business, asset management, debt management, profitability, and market value of the business. Calculation of cash flow statements depends on the applied accounting rules that govern the recording and use of cash flow (Lasher, 2011).
In conclusion, statement of cash flow includes performance elements such as revenue, gains, losses, expenses, and comprehensive income, assets and liabilities. Business decision makers such as management, lenders, investors and suppliers use cash flow investing activities in making decisions for investment an...