As a Complement to the Balance Sheet and the Income

question 70

Multiple Choice

As a complement to the balance sheet and the income statement, the statement of cash flows is an informative statement for analysts for all the following reasons except :

• A) The statement of cash flows provides information to assess the financial health of a firm. Analysts increasingly recognize that cash flows do not necessarily track income flows. A firm with a healthy income statement is not necessarily financially healthy, and vice versa. Cash requirements to service debt, for example, may outstrip the ability of operations to generate cash.
• B) The existence of negative cash flows from operations can be eliminated by using this financial statement.
• C) The statement of cash flows highlights accounting accruals, which can provide insight into the overall sustainability and quality of a firm's reported earnings.
• D) Analysts who understand the types of information this statement presents and the kinds of interpretations that are appropriate find that the statement of cash flows reveals information about the economic characteristics of a firm's industry, its strategy, and the stage in its life cycle.