Each section of the cash flow statement tells a different part of the firm's story. For example, it may be understood by management that significant amounts of their profits went into new buildings and equipment. What the cash flow statement does is isolates that information. Management and shareholders alike can extrapolate that data from the balance sheet, noting changes in fixed assets, but the presentation of the cash flow statement provides a clean, easy-to-understand summary of those transactions.

The same situation occurs with regards to financing activities. These can have a dramatic impact on the firm's cash position. The firm's bank account may look much healthier after a year in which stock was issued, but the cash flow statement allows management and investors to understand the role that stock issue played in the improved bank balance.

This is critical to understanding whether the firm is improving its cash position through...
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