The statement of cash flows provides information to assess the financial health of an entity

Other factors that analysts should consider when assessing the financial health of an entity should include the characteristics of the industry and the growth rate of the firm (Whalen, Baginski, & Bradshaw, 2018). These factors help analysts to determine if an entity has robust financial health. Firms that have healthy income statements but be financially unhealthy when a firm is making enough revenue but takes on too much debt. This action of taking too much debt is an unhealthy situation because if the firm loses its revenue, it will struggle to pay those acquired debts. A firm might be financially healthy but have an unhealthy cash flow. An example of this is when a firm is in the introductory phase. When the firm is in the introductory phase, its operating and investing cash flows will be negative while it is still increasing its operating activities.

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