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The AMA Handbook of Financial Risk Management by John J. HAMPTON

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Chapter3Managing Operating Cash Flows

Financial managers know that cash is king, but exactly what does that mean? Can a firm regularly report profits on its income statement and still be short on funds? Can it have adequate assets compared to its debts and still have a liquidity crisis? The answer to both of these questions is yes. Thus, we must understand the role played by cash flows, separate from the accounting records of a firm.

THE CASH FLOW STATEMENT

A useful starting point for understanding cash flows is the cash flow statement. It is often called by other names, such as the sources and uses of funds statement. It shows the movement of funds into the firm’s current asset accounts from external sources, such as stockholders and customers. ...

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