CONCLUSiONS
Over the past three decades, the statement of cash flow has become a valuable complement to the other statements. It is invaluable in many situations where the balance sheet and income statement provide only limited insight.
For example, the income statement is a dubious measure of the success of a highly leveraged company that is being managed to minimize, rather than maximize, reported profits. Similarly, it is largely irrelevant whether the balance sheet of a company with an already substantially depleted net worth shows 10% lower equity in the current quarter than in the previous one. The primary concern of the investor or creditor at such times is whether the company can buy enough time to solve its operating problems by continuing its near-term obligations.The cash flow statement does more than enrich the analysis of companies encountering risks and opportunities that the income statement and balance sheet are not designed to portray. It also helps to identify the life-cycle categories into which companies fit. At all stages of development, and whatever challenges a company faces, financial flexibility is essential to meeting those challenges. The cash flow statement is the best tool for measuring flexibility, which, contrary to a widely held view, is not merely a security blanket for squeamish investors. In the hands of an aggressive but prudent management, a cash flow cushion can enable a company to sustain essential long-term investment spending when competitors are forced to cut back.