Chapter 13

Making Sure the Company Has Cash to Carry On


Bullet Determining a company's solvency

Bullet Gauging financial strength by looking at debt

Bullet Checking cash sufficiency

No business can operate without cash. Unfortunately, the balance sheet (see Chapter 6) and income statement (see Chapter 7) don't tell you how well a company manages its cash flow, which is critical for measuring a company's ability to stay in business. To find this important information, you need to turn to the statement of cash flows, also known as the cash flow statement, which looks at how cash flows into and out of a business through its operations, investments, and financing activities.

In this chapter, I show you some basic calculations that help you determine the cash flow from sales and help you find out whether the cash flow is sufficient to meet the company's cash needs. Throughout the chapter, I use Mattel and Hasbro (two leading toy companies) as examples to show you how to use these tools to evaluate a company's financial health. You can find Hasbro's financial statements, as well as its complete annual report, at and Mattel's at

Measuring Income Success

Looking ...

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