The first thing an analyst can learn from evaluating the cash flow statements is the age and maturity of an entity. Entities that are in the start-up phase will have more negative cash flows from operations and investing activities compared to mature entities (Whalen, Baginski, & Bradshaw, 2018). This identification of maturity helps analysts to compare how other entities start-up or mature entities are performing. The second thing that helps analysts while evaluating cash flow statements is how non-cash components affect the operating cash flows. The non-cash components are items such as noncurrent assets that may cause the operating cash flow to be greater than the entity’s net income (Whalen et al., 2018). Understanding how these components affect operating cash flows allows analysts to understand how firms use non-cash components when forming cash flows. The final thing that is important for analysts to learn from cash flow evaluations is how to discern data from cash flow statements. Analysts use the data from cash flow statements to discern if managers are making aggressive decisions towards the non-cash components on balance sheets (Whalen et al., 2018). By identifying and studying this data, analysts can begin to study if the firm is actually growing or if its managers are aggressively reporting non-cash components on the cash flow statements.

Timothy

References

Whalen, J., Baginski, S., & Bradshaw, M. (2018). Financial reporting, financial statement

analysis and valuation (9th ed.). [Adobe Digital Editions version]. Retrieved from

https://www.gcumedia.com/digital-resources/cengage/2018/financial-reporting-financial-

statement-analysis-and-valuation_9e.php