Question

Review the existing literature to critically examine the relative information content of the income statement and the statement of cash flows. Why do investors find both income statement and statement of cash flows useful?

Answer 1

Usefulness of income statement to investors:

1) Income statements should help investors to a)determine the past financial performance of the company ,

b)predict future performance,

c) assess the capability of generating future cash flows through report of the income and expenses

Usefulness of Cash flow to investors:

1) The statement of cash flows is very important to investors because it shows how much actual cash a company has generated.

2) The cash flow statement is useful to investors because it translates the earnings reported on the income statement which are subject to reporting regulations and accounting decisions into a simple summary of how much cash the company has generated during the reporting period.