As an investor, there are important factors to evaluate in the cash flow statement.  The main interest to an investor is the excess cash that a company produces at a given period. This is known as the free cash flow. It is calculated using net income, depreciation, changes in working capital and the capital expenditures (Hettinger & Dolan, 2011). The free cash flows indicate whether a company can be able to meet its immediate obligations. Operating income is the income generated from the normal business operations. It is important to an investor in that it indicates the future profitability of a company.

The accounts receivable turnover rate shows the speed at which a company handles it collection of payments owed. If the rate declines from period to period, it may signal that the company has excess debts. However, if the rate increases it may signal that the company is aggressive in the collection of debts (Hettinger & Dolan, 2011). This is significant to an investor in determining the viability of a company. The accounts payable turnover rate shows the speed at which a company pays off its debts. It shows how a company handles it own debts. A decline in ratio signals a decline in financial conditions and vice versa.

Sales allowance is the reduction in the price of a product due to a problem with the product. The sales allowance account offsets the gross sales. A large balance in this account indicates that a company has problems with its products. This would be very significant to an investor. Sales discount is the reduction of price by the seller when the seller pays within the set discount periods (Hettinger & Dolan, 2011). The balance in this account offsets sales revenue account. A higher balance in both the sales allowance and sales discount can indicate the company is financially unstable.

Reference

Hettinger, W. & Dolan-Heitlinger, J. (2011). Finance without fear. Windham Center, Conn.: The Institute of Finance and Entrpreneurship.

 
Do you need an Original High Quality Academic Custom Essay?