Final answer:
A strong cash flows statement signifies that a company is generating ample cash, primarily through its business operations, which can be used for reinvesting and promoting growth. Profits serve as a key financial capital source, enabling reinvestment in the company's future. Alternate sources of capital like borrowing may be needed during periods of low profits or losses.
Step-by-step explanation:
A strong cash flows statement indicates that significant cash is being generated by a company's operations, which can often be used for purposes such as reinvesting in the business. Reinvesting may involve improving or expanding facilities, hiring more staff, or purchasing new technology. The additional investment from these profits can foster further growth, leading to a cycle of increasing production, sales, and subsequently, even larger cash flows. This loop enables the company's continued expansion as long as the reinvested funds exceed depreciation and the company remains profitable.
For established companies, profits are a primary source of financial capital and are essential for the sustainability of the business. They provide the necessary resources for the company to invest in new opportunities or to sustain itself during challenging periods when profits are low or losses occur. In addition to profits, firms may need to seek out other financial capital sources, such as borrowing through banks or issuing bonds, to ensure continuity and growth in tough times.