Final answer:
An investor evaluates a company's cash management by reviewing its financial statements, especially the cash flow statement, to understand cash inflows and outflows.
Step-by-step explanation:
An investor assessing the effectiveness of a company's cash management will typically review the company's financial statements, particularly the cash flow statement. The cash flow statement provides a detailed breakdown of the company's cash inflows and outflows and can give insight into how efficiently the company is managing its cash resources.
Factors such as how the company generates cash, including early-stage investors, reinvesting profits, selling stock, and borrowing through banks or bonds, will be analyzed to evaluate the sustainability and efficiency of cash management practices.
From a firm's perspective, a bond is similar to a bank loan in that both are methods of borrowing funds, but they differ in their terms, flexibility, and the rights they grant to the lender. Early-stage companies tend to raise money from private investors or venture capitalists as these investors may have a better grasp of the company's potential compared to the broader market, which may make other forms of raising capital such as an IPO less viable. As companies grow, options like issuing bonds or stocks become more viable due to greater market knowledge of the company's products and financial health.