Accounting / July 18, 2018 / Willow Mccoy
A cash flow statement, also referred to as a statement of cash flows, shows the flow of funds to and from a business, organization, or individual. It is often prepared using the indirect method of accounting to calculate net cash flows. The statement is useful for analyzing business performance, making projections about future cash flows, influencing business planning, and informing important decisions. The term "cash" refers to both income and expenditures and may include investments and assets that you can easily convert to cash. By conducting a cash flow analysis, a business can evaluate its liquidity and solvency, compare performance among accounting periods, identify cash flow drivers to support growth, and plan ahead to maintain a positive cash position.
Asset management ratios are the key to analyzing how effectively and efficiency your small business is managing its assets to produce sales. Asset management ratios are also called turnover ratios or efficiency ratios. If you have too much invested in your company's assets, your operating capital will be too high. If you don't have enough invested in assets, you will lose sales and that will hurt your profitability, free cash flow, and stock price.
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