Chapter 8
Statement of Cash Flows
While Wall Street tends to focus primarily on the income statement, it is a good idea to give some time to analyzing the statement of cash flows. As seen with the financial crisis of 2008, it is critically important to understand a company’s liquidity position. Ironically, it is possible for a company to show a profit and yet run out of cash! What’s more, the income statement is subject to much more manipulation because of changes in accounting treatments and assumptions.
Consider that an initial public offering (IPO) can also be misleading for a company’s cash position. After all, an offering will mean a large amount of cash that will be deposited in the corporate treasury. All in all, it can help deal with ...
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