Cash Flow Statement and Company Health
Sometimes the overall high cash flow might make it seem like that a business is doing really well. But you have to look closely at the cash flow statement and the cash flow from operating activities.
Because sometimes, high cash flow can come from the company selling aways most of its assests, or taking a huge amount of loan.
When looking at the overall cash flow statement, don’t mistake the high cash inflow at the end to indicate that the business is doing well.
You have to look at the three different components separately. If the company has cash coming in through operating activities, then it means it is doing well in the market.
But, there can be cash coming in on the other two activities as well. The company can take a huge amount of loan. That doesn’t mean the company is doing well. where the company can sell off its long term assets. That clearly means the company is not doing well and can be on the liquidation process.
#finance #accounting #cashflow
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