Final answer:
The statement is true; analysts must consider cash flows over time to assess a company's financial health and sustainable performance, understanding patterns in raising capital, and dealing with imperfect information in the market.
Step-by-step explanation:
True, the analyst of financial statements should indeed consider cash flows over a period of time, looking at patterns of performance and exploring underlying causes of strength and weakness. This analysis is crucial as it allows an understanding of the financial health and potential sustainability of a company. It takes into account factors such as revenue growth, cost management, and investment strategies, which all play a significant role in a firm's operational success. This historical perspective can be particularly informative when it comes to forecasting future performance, managing risks, and making informed investment decisions.
When analysts examine cash flows, they look for patterns that can indicate how a firm chooses between sources of financial capital. For example, an analyst might consider how a business responds to imperfect information in the market, where there might be disparities in what is known by the firm's management compared to outside investors. This factor necessitates careful scrutiny of cash flows and other financial statement components to ascertain a firm's true performance and evaluate its prospects for future profitability.