Statement of cash flows are useful because of its ability to generate future cash flows.

Question: Statement of cash flows are useful because of its ability to generate future cash flows.

One of the most important financial statements for any business is the statement of cash flows. This statement shows how much cash the business generated and used during a given period, such as a month, quarter, or year. The statement of cash flows is useful because of its ability to indicate the future cash flows of the business.

Why is this important? Because cash is the lifeblood of any business. Without enough cash, a business cannot pay its bills, invest in new opportunities, or grow. Cash flow also reflects the profitability and efficiency of the business, as well as its ability to manage its working capital.

The statement of cash flows is divided into three sections: operating, investing, and financing activities. Operating activities are the main sources and uses of cash from the normal operations of the business, such as sales, expenses, and taxes. Investing activities are the cash flows related to the purchase and sale of long-term assets, such as property, plant, and equipment. Financing activities are the cash flows related to the borrowing and repayment of debt, as well as the issuance and repurchase of equity.

By analyzing the statement of cash flows, a business can evaluate its liquidity, solvency, and financial flexibility. Liquidity is the ability to meet short-term obligations with current assets. Solvency is the ability to meet long-term obligations with total assets. Financial flexibility is the ability to adapt to changing circumstances and opportunities with available financial resources.

The statement of cash flows is a valuable tool for any business owner, manager, investor, or creditor. It provides insight into the past performance and future potential of the business. By understanding how cash flows in and out of the business, one can make better decisions and plan ahead for success.

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