A cash flow statement is a financial statement that investors, shareholders, manager, employees, regulators, and other interested members of the public use to evaluate the position of a business, organization or any entity that interacts with money in its operation. It shows how money has been acquired and the activities that have been financed by the money generated.
A Cash flow statement is used to assess or evaluate the liquidity position of the business by identifying the changes in cash and cash balances. The changes in cash and cash equivalents are very useful to the interested users of the financial statement. Every financial period records unique changes in cash and is reflected in the cash balances at the beginning of the next period in a cash flow statement. The liquidity of a business is indicated by the cash balance of the business; they indicate the ability of the firm to meet its obligations in the short-term (Barnard, Parry, Fredericksen, & Farm Credit Services, 1989).
It is used to assess the ability of the firm to generate positive cash flows in the future financial periods of the business. It is possible to weigh the amount of proceeds generated from the three main types of activities of the business like; operating, investing and financing activities which are recorded in the cash flow statement. The ability of the business to create positive cash flows in the future is tagged to the fraction of the cash flows generated by from the operating and investing activities relative to the total cash flows (Barnard, Parry, Fredericksen, & Farm Credit Services, 1989).
Cash flow statements are used by the firm to assess its ability to meet its maturing and overdue obligations and pay dividends. These kinds of obligations can be met if the company has enough liquid assets (cash and cash equivalents) to meet the obligations of the company. If the liquid assets are not enough to take care of the maturing and overdue obligations, then the business is at risk of the of becoming insolvent. A user of the cash flow can be able to evaluate the ability of the business to meet its obligations by comparing the amount of the liquid assets and the maturing and the overdue obligations.
Analysis of Ford Motors Company:
Fords cash and cash equivalents amounted to $ 10.9 billion in 2012 while that of 2011 was $ 12.1 billion as at December (Ford Motor Company Annual Report, 2012). The latter shows a decrease in the total value of cash and cash equivalents of the company from 2011 to 2012. The decline in the value can be attributed to the short-term and long-term debts increase over the year. Though mentioned as debts, the companys aim is to generate more proceeds from the debts which finance extra projects and activities of the business. Consequently, it is can also be explained in terms of the investment of the company; there has been a major investment in the company which obviously have consumed a lot of cash in 2012 financial period therefore reducing the value of cash and cash equivalents of the company in that period.
According to the Ford key analysis, it is easy to note that the company recorded a better pre-tax earnings in 2012 compared to 2011 which is an indication of a better performance of the business (Ford Motor Company Annual Report, 2012). The improvement can be ascribed to favorable volumes of their products and maybe improvement of their products as recorded by the management analysis. The revenue increase indicates that the business in the Pacific Africa is getting better, and their penetration is increasing as well as their market share.
According to the information provided by the financial statements, it can be depicted that Fords Credit Cash and cash equivalents and the marketable securities are held primarily in highly liquid investments which can finance any anticipated or unanticipated cash needs. Some of these investments include United States Treasury Obligations, Federal Agency Securities, Bank Time Deposits, and other corporate investment grade securities (Ford Motor Companys Annual Report, 2012).
Barnard, F. L., Parry, D., Fredericksen, B., & Farm Credit Services. (1989). Preparing a cash flow statement. St. Paul, MN: Farm Credit Services.
Ford Motor Company Annual Report. (2012)
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