Читать книгу How to Read a Financial Report - John A. Tracy - Страница 8

In Exhibit 1.1 we see that cash, the all-important lubricant of business activity, decreased $470,000 during the period (in this case, a year). In other words, the total of cash outflows exceeded the total of cash inflows by this amount for the period. The cash decrease and the reasons for it are important information. The summary of cash flows tells us part of the story, but cash flows alone do not tell the whole story. A business’s managers, investors, lenders, and other stakeholders need to know two additional pieces of information that are not reported in an organization’s summary of cash flows. They are:

1 The profit earned (or loss suffered) by the business for the period.

2 The financial condition of the business at the end of the period.

Now, hold on. Exhibit 1.1 just informed us that the net cash increase from sales revenue less expenses was $3,105,000 for the year. This may lead you to ask, “Doesn’t this cash increase equal the amount of profit earned for the year?” No, it doesn’t. The net cash flow from profit-making operations during the period does not equal the amount of profit earned for the period. In fact, it’s not unusual for these two numbers to be very different.

Profit is an accounting-determined number that requires much more than simply keeping track of cash flows. The differences between using a checkbook to measure profit and using accounting methods to measure profit are important to understand. Cash flows during a period are hardly ever the correct amounts for measuring a company’s sales revenue and expenses for that period. To summarize: Profit cannot be determined from cash flows.

Furthermore, a summary of cash flows reveals virtually nothing about the financial condition of the business. Financial condition refers to the assets of the business matched against its liabilities at the end of the period. For example: How much cash does the company have in its checking account(s) at the end of the year? From the summary of cash flows (Exhibit 1.1) we can see that the business decreased its cash balance $470,000 during the year, but we cannot determine the company’s ending cash balance. More importantly, the cash flows summary does not report the amounts of assets and liabilities of the business at the end of the period.