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As long as a firm maintains a positive cash balance, why is it essential to review...

As long as a firm maintains a positive cash balance, why is it essential to review the firm's cash flows?

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Answer #1
  • Firms can have a positive cash balance as they may be using borrowed funds or equity investments.
  • For a firm to be financially healthy over the long-term, it must be able to generate cash internally.
  • Cash flow analysis enables you to determine the sources, and uses, of a firm's cash to evaluate the financial health of the firm and ensure that the firm is generating positive cash flows from its operations.
  • Hence it is essential to review the firm's cash flow statement.

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