The concept of Cash flow statement, income statement & what is difference between Cash flow & net income

                                              

Income Statement:

Current performance of the company shows to investors through the use of financial statements. This basic information helps investors to overall evaluate the company value as well as share price. The income statement of the company is an important statement with the help of this its shows companies profit listed company total expense and revenues on it. A company continuously gaining profit for a long period it measured with worthy investment choice.

The income statement shows a true pitcher of profitability, so company investors and managers review it on a continuous basis. Therefore, it must be updated on a regular basis as compared with other documents. Moreover, financial statements are published annually, but the income statement released continuously quarterly or monthly. According to Manea (2017), study financial statements in terms of the balance sheet, income statement and cash flow statements helps to managers and investor overview the current pitcher and take the decision of further investments. Baños et al. (2016), shows the importance of income statement it provides as basic necessary information required managers for future decisions.

Usefulness of income statement and statement of cash flows

Cash flow statement of a company tells about cash requirements for a specific period of time in terms of month, quarter or year. A is the question is rise why companies need cash flow statements whenever income statement shows all companies detail the answer is simply based on the concept of accrual-based. The concept of accrual accounting demands that company’s record expense and revenue as the transaction occurs instead of an exchange of cash. The statements very useful for investors because it shows real position of business cash is generated it also excludes, on the other hand, noncash, expense as well as revenue which are included in cash flow statement. The cash flow statement useful source for investors to examine the actual performance in terms actual cash generated by business this also show changes in the balance sheet and its effects on cash equivalents as well as financial activities (Chen et al. 2018).

Cash flow covering both capital expenditure and dividend payment:

At times it is seen that there raises a type of question such as is rise firm cash flow still able to pay capital expenditures and dividend both at the same time. To answer this question first of all it is need to identify the sources of cash flow which consist upon cash from operating activities and from investment activities such as amount receipts from employees and customers, amount of income tax is refund, cash generated from operation, received investment income as well as other interest, cash from sales of international subsidiaries. All mention sources are still able to pay them both at the time amount of capital expenditures and payment of the dividend (Manea 2017).

Cash flow statements help to understand the real and true position of firm actual cash generate from the business operations. That is reason from all financial statement cash flow statement is considered most important because it shows actual position whereas income statement and balance sheet record item on accrual-based accounting means to record the expense and revenue when a transaction occurs as well as cash flow statement is updated on a regular basis on quarterly and annually. Therefore, a number of investors rely on its use for taking the decision of they invest or not because this statement gives details about the previous share price, and dividend payment and growth.

Difference between cash flow and net income

The relationship between cash flow and income statement shown below the operating activities portion cash flow statement. The portion of the financial statements uses the information found in the income statement. Therefore, income statements made before and then after cash flow statements are prepared. Below the operating activities, the first account is net income, and this account shows exact information at that time are available in the income statement. In income statement depreciation expense in the next line after the first account of net income. To assure the amount of net cash after operating activities, the company subtracts the amount of depreciation in the net income account, as well as changes in specific accounts, originate in the balance sheet (Miao, Teoh, and Zhu 2016).

 Many manager’s and investors instead focus on net income they rely on cash flow statements the reason is simply it is not essay for management to change it, or accounting guidelines to misrepresent, cash flow. If cash flow from operation is less than to net income, it is a sign that quality earning of the company and the quality helpfulness earning stands questions bale. Furthermore, when the net income is less than as to cash flow from operations, on the other side, the company recommend improved than its net income. The reason is that number of investors, whenever the stock value, will apply the method of price to cash flow proportion the share price separated through cash from operations each share value of the share as an alternative of the P/E proportion.

   Is rise firm cash flow still able to pay capital expenditures and dividend both at the same time.

 To answer this question first of all it is need to identify the sources of cash flow which consist upon cash from operating activities and from investment activities such as amount receipts from employees and customers, amount of income tax is refund, cash generated from operation, received investment income as well as other interest, cash from sales of international subsidiaries.

 In Nutshell, Cash flow statements help to understand the real and true position of firm actual cash generate from the business operations. That is reason from all financial statement cash flow statement is considered most important because it shows actual position whereas income statement and balance sheet record item on accrual-based accounting means to record the expense and revenue when a transaction occurs as well as cash flow statement is updated on a regular basis on quarterly and annually. Therefore, a number of investors rely on its use for taking the decision of they invest or not because this statement gives details about the previous share price, and dividend payment and growth.