Cash Flow Ratios: Tools for Financial Analysis‪.‬

INTRODUCTION One of the four major financial statements that are directly related to cash is the statement of cash flows. The purpose of the cash flows statement is to report inflows and outflows of cash for a given period of time. Cash flows related to operating, financing, and investing activities of a company are separately reported in the statement. This detailed disclosure of individual cash flows is important to users. Cash flows can show a company's ability to finance its expenditures from operations, pay its existing debts as they mature, and demonstrate a company's ability to meet unexpected obligations and to pursue business opportunities (Larson, Wild, & Chappetta, 2006). According to Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," the information in the statement, if used with information in other financial statements, can help investors, creditors, and others to assess an entity's ability to generate positive future net cash flows, and its ability to meet its obligations and to pay dividends, and determine its needs for external financing during the period.