Question

In analyzing the statement of cash flows, why is it important that it be segmented in the manner it is?

Answer 1

Cash Flow statement is divided in 3 Parts is called operating activities, investing activities, and financing activities.

Operating Activities: In This activity we can show the changes of all operating activities like changed in account receivable, Account payable, Stock, Depreciation Etc., So by operating activities we know is the our increase or decrease in cash flow in this activities.

Investing Activities: In this activity whether we invested money anywhere or sold any investment will come. So the net effect of increase or decrease will reflect in this section.

Financing activities: In this section we will show the changes done due to financial activities like issuance of bonds, Common shares and redemption of bonds etc.

So as per the above the cash flow statement is segregated so for the clear picture of the cash flow we can use these segment. These segment will shown the clear picture of Cash flow like from where the cash is camed and whether we can invested . Overall the main reason for the segmented manner of the cash flow is the clear picture of the cash movement in organization.