Cash-flow analysis

Question 1

What is a cash flow statement?

Answer 1

A cash flow statement is a listing of the cash inflows and cash outflows of the business.

A business can be profitable but still not have sufficient cash flow, which in the worst case can lead to bankruptcy.

Question 2

What is the difference between a cash flow statement and an income statement?

Answer 2

• The cash flow statement shows liquidity
• An income statement shows profitability

Question 3

What are the objectives of the cash flow statement?

Answer 3

• Measures cash inflows and outflows
• Classifies activities
• Makes predictions of future cash flows
• Evaluates liquidity and solvency

Question 4

What are the methods of determining the cash flow?

Answer 4

• The direct method (cash flow from activity)
• The indirect method (income from adjustments)

Question 5

What is the risk of bankruptcy?

Answer 5

It is defined as the possibility of the business to fail to pay the due obligaitions.