Discussion Post: Cash Flow Statements- Thought Responses
As people often say, "Cash is king!" Cash flow is an important indicator of a company's financial health and a value driver. Effective cash flow management enables companies to have the most important resource on hand to meet daily needs, while preventing financial stress and potential failure. Locate financial statements for a company of your choice and review the cash flow statement. Respond to the following in a minimum of 175 words:
o What insights does the cash flow statement provide about the company's performance, in relation to other financial statements? Cite your data source.
Prompt I:
A cash flow statement shows all cash inflows and outflows through an accounting period which can show if the company operationally has made good decisions on the behalf of the stockholders or if their decisions have had a negative impact on their overall cash available for growth of assets and structures, not just their revenues. Where the other financial statements mainly focus on the activities that generate earnings for the organization. By looking at The Lowes Corporation's cash flow statement for 2020. I can see that even though a pandemic had hit they have made solid choices operationally to keep their stores open. They spent more on PPE and sanitation supplies that helped them stay open and exceed their previous two years' sales by having an increase in net income of 85%. But their Investment activities cash flow was down by 26.76% showing that their operations plan is great but their future stability may be weakening through their poor choices of buying and selling investments in 2020. But as the pandemic has caused more people to funnel through to purchase products to improve their homes. Lowe's did not want to invest more into an unstable market leaving their current investments to fall flat.
Prompt II:
In financial accounting, a cash flow statement, also known as the statement of cash flows, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. What I have learned is a company reported earnings of $1 billion, does not necessarily mean it has that much cash in the bank but could show assets and financial statements are based on accrual accounting, which takes into account non-cash items such as buildings, equipment, and anything that can be considered monetary value. Financial statements consider non-cash items to reflect the financial health of a company more accurately. The company I chose to look up was Amazon which has a cash flow of 66 million but the company has a free cash flow of 25 million. Free cash flow is the money that can be used to pay back creditors and dividends and interest to investors. Although the company has grown throughout many years the companies dept has grown as well from over 6 million in 2017 to now 18 plus million in 2020. I do believe the company will continue to grow but it should find ways to manage the debt better.
The response should include a reference list. Using double-space, Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.