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How does Cash Flow Statement affect the company's decision in investment?
Wiki User
∙ 11y ago
The cash flow statement is a document that shows a business how much cash came IN and OUT of the business over the last year.
An example:
A business may need to invest in new machinery or a some new premises but can only afford one option it can't do both. How does the business decide which option to choose? It may use a cash flow statement as a decision making tool - to help the business decide which investment option to pick.
The cash flow statement in this example may show in the previous year that the rent had risen increasing the costs and outflows. A new premises would be a cost but would protect the company from any further increases.
The machinery may be key to new products that the business wants to produce so the statement cannot be looked at in isolation - a business would need to look at all the final accounts and hear from all the departments. New machinery may be a cost but would generate revenue (cash inflow) whereas the premises would only be a cost (cash outflow).
Wiki User
∙ 11y ago
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