Question

Financial statements all have a goal. The statement of cash flows does as well. Describe how the statement of cash flows helps investors and creditors:

predict future cash flows
Evaluate management decisions.
Predict the ability to make debt payments to lenders and pay dividends to stockholders.
A) The statement of cash flows helps investors and creditors predict future cash flows by providing a historical record of how cash has been generated and used in the past.
B) The statement of cash flows assists investors and creditors in evaluating management decisions by highlighting the impact of those decisions on the company's cash position.
C) The statement of cash flows allows investors and creditors to predict the ability to make debt payments and pay dividends by revealing whether the company generates enough cash from its operating activities.
D) The statement of cash flows primarily focuses on historical data and does not provide any insights for investors and creditors looking to predict future cash flows or evaluate management decisions.

Answer 1

The statement of cash flows is integral for stakeholders to predict future cash flows, assess management decisions, and evaluate the company’s capability to manage its debts and dividends. It provides a historical perspective that can be used to gauge future performance and financial stability.

Step-by-step explanation:

The statement of cash flows is a crucial financial document for stakeholders like investors and creditors to assess a company's financial health. Concerning the choices provided:

• (A) The statement of cash flows helps investors and creditors predict future cash flows by providing a historical record of cash inflows and outflows, enabling them to understand how the company generates and spends cash, which is indicative of future performance.
• (B) It also assists in evaluating management decisions as it reflects the financial outcomes of those decisions, particularly in the areas of investment, financing, and operations.
• (C) Additionally, by showcasing the cash generated from operating activities, it allows for assessment of the firm's ability to make debt payments and pay dividends, which is key for lenders and shareholders in gauging financial stability.
• (D) Contrary to the statement, the statement of cash flows indeed provides insights that aid in predicting future cash flows and evaluating past management decisions.