THE CONTRIBUTION OF CASH FLOW INDICATORS IN TERMS OF INFORMATION TO THE COMPANY PERFORMANCE ANALYSIS

Prof. Jenica Popescu Ph. D Assoc. Prof. Victoria Firescu Ph. D
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Prof. Jenica Popescu Ph. D Assoc. Prof. Victoria Firescu Ph. D: University of Piteşti Faculty of Economic Sciences Piteşti, Romania

Annals of University of Craiova - Economic Sciences Series, 2011, vol. 4, issue 39, 166-173

Abstract: The necessity of cash flow appears in the context of the limits of the balance sheet and of the profit and loss account in the reflection of the financial and accounting information. Although the profit and loss account provides a dynamical image of the activity of a company, it does no allow for obtaining an image of the financial cash flows that change the financial structure of the company or that change the company’s cash. The information related to the cash flows of an entity is useful for the users of the financial statements in the economic decision-making process, because it is a basis for the assessment of the entity’s capacity to generate cash and cash equivalents, as well as the usefulness of such cash flows. The company performance analysis based only on indicators calculated with the help of the profit and loss account is often relative and, therefore, it results in the need to determine the entity’s capacity to generate cash or cash equivalents. Intermediate management balances are mere intellectual formalizations of potential gains that, in the context of the accrual accounting, create a hypothetical dimension of the company performance. Free cash flows should not be interpreted in a simplistic manner based on their negative or positive value.

Keywords: cash flow; cash indicators; performance (search for similar items in EconPapers)
JEL-codes: G32 M41 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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