Final answer:
The statement is true. Financial analysts should examine cash flows to understand a company's liquidity and financial health. This involves analyzing patterns and underlying causes to provide insights and forecasts for the company's future.
Step-by-step explanation:
Analyzing cash flows is essential as it allows analysts to assess the company's liquidity and overall financial health. Examining the patterns can reveal how effectively the company is managing its cash to support its operations and investments. It's also crucial to understand how external and internal factors impact the company's financial performance. Patterns may show consistency in generating positive cash flow, or they might indicate areas of concern that merit closer inspection, such as recurring negative cash flows.
Financial analysts often dissect the Cash Flow Statement, which reflects the company's cash inflows and outflows from operating, investing, and financing activities. This exercise is vital for identifying trends, anomalies, or events that triggered significant changes in cash flow. For example, a steady increase in cash flow from operations might suggest a growing market demand that the company is successfully meeting, while a decline could signal a loss of market share or inefficient operations. Ultimately, this level of analysis equips analysts with a more profound understanding needed to provide insights and forecasts on the company's future financial condition.