Why Is the Statement of Cash Flows Useful to the Analyst

question 10

Multiple Choice

Why is the statement of cash flows useful to the analyst?

• A) It is the only source in financial statements for learning about cash generation.
• B) Focusing on net income can be misleading if a company has a healthy profit, but cannot translate the profit into cash.
• C) The statement of cash flows reveals why a company was able to generate a profit.
• D) Both (a) and (b).

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Definitions:

Company

An organized entity engaged in trade of goods, services, or both to consumers, operating with the aim of generating profit.

Book Value Per Share

The equity available to common shareholders divided by the number of outstanding shares, indicating the net asset value of a company on a per-share basis.

Total Common Stock

The total shares of a corporation's common stock that are owned by shareholders, including both publicly traded and privately held shares.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing the ownership interest of shareholders.