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:

FVTOCI

Fair Value Through Other Comprehensive Income (FVTOCI) is an accounting classification for financial assets, indicating changes in fair value are reported in other comprehensive income rather than profit or loss.

FVTPL

Stands for Fair Value Through Profit or Loss, an accounting measure where financial assets and liabilities are recorded at their current market value and changes in fair value are recognized in profit or loss.

Comprehensive Income

The total change in equity for a reporting period other than from transactions with owners, including all recognized income and expenses, both realized and unrealized.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the post-acquisition changes in the investee's net assets.