FINANCIAL
STATEMENT ANALYSIS 1-21
CASH FLOW STATEMENT
Sources and uses
of funds
The financial statement that is used to show the sources and uses of a
company's funds is called a Cash Flow Statement. It also may be called
the "Statement of Changes in Financial Position" or the "Sources and
Uses Statement," depending on its structure. The analyst uses the Cash
Flow Statement to examine the flow of funds into a company and the
use of those funds. We will use the terms "funds" and "cash"
interchangeably throughout this section.
An analyst may have difficulty gaining access to the applicable
information needed to determine a company's sources and uses of cash.
This is especially true when studying a competitor. One solution is to
construct a Cash Flow Statement based on publicly available
information (such as the Income Statement and Balance Sheet from a
company's annual report). The objective is to develop a framework that
provides an accurate estimate of the company's cash flows. It is
important for you to learn to construct a Cash Flow Statement as
preparation for Unit Three Time Value of Money.
We will continue to use the XYZ Corporation as our example. The
company's Balance Sheet for the past two years is shown again in Figure
1.3 and the Income Statement is shown again in Figure 1.4. These two
financial statements provide the information for the Cash Flow
Statement, and you will want to refer to them as we move through the
process.