Question

Why are cash flows important for a financial manager to assess and analyze? What is the difference between Net Income and Cash Flows?

Answer 1

Cash flow are very important for fiance manager . Cash flows are classified in to 3 category-

cash flow from operating activities

cash flow from investing activities

cash flow from financing activities.

Cash flow statement tells us source of the cash flow and application or use of the cash flow.

This will help to understand the finance manager as to which direction company is heading to .

Cash flow statement also shows us the liquidity situation of the company.

Part 2 : difference in cash flow and net income :: Cashflow statement are different from income statement. Income statement tells us the revenue and expenses for th eperiod. But these revenue may not be realized into cash or these expenses may not necessarily involve the cash payment like depreciation, amortization , provision created etc.

Cash flow statement only take into account item which affect the cash from both income statement as well as balance sheet.

therefore cash flow statement differ from the income statement.