It’s Important for any owner to have a successful and healthy business What attracts other investors is to see that a company is eligible to meet their obligations with their creditors, employees and the investors. Creditors look for a company that is profitable enough to pay their liability (debt). Employees want to work for a company where they can know that they would get pay every month. This is why people look at the company 's cash flows. They’re 4 types of Financial statements. The income statement, reports a company 's revenues and expenses. This result the net income or loss of period of time. The retained earnings shows the amount and cause of retained earning in specific periods, The Balance sheet reports assets, liabilities, and…show more content… It reports cash receipts and cash payments from its classifications of operating activity, investing activity, and financial activity. Each activity is apart of a huge rule on a statement of cash flows for, it helps financial statement readers gather a better understanding of why assets and liabilities change over a period of time. In other words, in a statement of cash flow states every flow of cash that comes into and out of a business or project.
In a cash flow statement investor can make predictions of the future liquidity position of the company. This is seen in the incomes statement by the operating activity. It shows the changes in working capital and whether there’s an increase or decrease in inventory, account payable, account receivable, and short term debt of a company. Example, Mr. Joy want’s to invest money on Monica’s shoe company. In Order for Monica receive Mr. Joy investment, she would have to prove to him that her company is portable. As an investor he’s going to want to see a positive cash flow in her income from operating activities, so the company can prove they have been selling off all its assets. In order to get a fuller picture of how the money is being produced in Monica’s shoe company, he would also take a look at the balance sheet and income statement, This is how Mr. Joy would determine…show more content… It also involves the collecting of loans and the production of money. If there was any gains or loss from investment due to change in a company 's cash position. The cash flow in investing activity is one of the most important items of the statement of cash flow, because it can show any positive or negative amount of cash flow generated from operations. We also have Cash flow in financial activity. This involves the changes of long-term liability and stockholders equity. It gives an investor a good overview of the balance sheet. If a company has a positive number in cash flows from financial statement it means that cash is flowing more into the company that flowing out, which increases the company 's assets. If the company has a negative number, it means the there’s debt within the company or they 're just making dividend payments. Having a negative number in cash flow does not mean that the company is not profitable. Investors are glad to see negative numbers, because it means that the company is meeting their obligations with their employees, creditors, and other