Cash Flow Statement: Key to Understanding Company Profitability - Essay Sample

Introduction

The cash flow statement is a crucial document since it enlightens the investors on the ultimate measure of the company's profitability. Furthermore, it projects the link between the closing cash balance and the opening cash in the company's balance sheet. Additionally, the cash flow statement consists of three areas; the operating cash flow, which shows the inflow and outflow of money in daily activities, investments cash flow, which allows investors to note the cash flow in investments, and the financing cash flow, which gives the investors the real picture of money flow between the business and the creditors. Ideally, the cash flow of Wal-Mart Company has contributed to the increased number of investors in the company. For instance, looking at the Wal-Mart cash flow since 2017, there is a significant increase in their consolidated net income from $14293 to $15201 million (Lu, 2019). Generating cash statements in Walmart has posed a positive effect on investors, such as increasing their confidence, and consequently helping them expand their investment terms significantly.

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Positive cash flow is a crucial tool that gives investors the confidence to invest in Wal-Mart since they are convinced by the presence of quality goods in the company. Ideally, products and services from Wal-Mart Company exist in the right conditions; hence investors do not incur extra cost to upgrade the appliances or even repair them. Besides, the income generated by the utilization of Wal-Mart Company is capable of allowing investors to improve the property in the future without incurring extra cost. Investors always focus on investing in companies whose income from their sales can generate significant profit. Therefore, the availability of positive cash flow attracts more customers to invest in Wal-Mart Company (Mazouni, 2018). The annual production of cash flow statement has enhanced the ability of the organization to gain more investors in the last two years.

Cash flow indicates the profitability of Wal-Mart Company, and hence it gives investors the ability to expand their investment terms and conditions. Moreover, the profit gained by the company encourages investors to invest in Wal-Mart's shares regardless of the risks. The strength of the Wal-Mart Company to have more gain motivates investors to invest in other properties of the company. For instance, the investors increase their investment in the Wal-Mart company since the profit gained is utilized in the pay of the properties. Therefore, in case of any losses, the investors are assured of being refunded back the amount they invested (Mazouni, 2018). Also, the extra income of the company purchases an additional property, and this is one of the critical aims of Wal-Mart in generating money.

An investor examines if the company's financial health is in good condition before making their investment. Therefore, the top priority of investors in the Wal-Mart company is the availability of positive cash flow property. The positive cash flow motivates investors to snatch investment opportunities in the company drastically regardless of the investment cost. For instance, it is easy to build a strong relationship with investors whenever the cash flow indicates that the company is making significant benefits (Andjelic & Vesic,2017). Hence, the cash flow determines the range of competition of investors in the Wal-Mart company.

Conclusion

To sum up the discussion, it is notable that the cash flow statement is a crucial determinate of how investors conceive about a given company. For instance, the favorable properties of cash flow have contributed to the increased number of investors in the Wal-Mart company. Since investors are encouraged by the financial health of an organization, publishing a cash flow statement is essential for companies.

References

Andjelic, S., & Vesic, T. (2017). The importance of financial analysis for business decision making. In Book of proceedings from Sixth International Scientific Conference Employment, Education and Entrepreneurship (pp. 9-25). http://www.eee-conference.com/_img/arhiva/2017/eee_2017_finance_banking_and_insurance.pdf#page=9

Lu, M. (2019). Evaluation of Financial Situation of Walmart Company. https://dspace.vsb.cz/bitstream/handle/10084/135576/LUM0006_EKF_B6202_6202R010_2019.pdf?sequence=1

Mazouni, M. (2018). The Effect of Global Investment Decisions and Financial Risk on Multinational Corporations: Walmart Corporation Case Study. Available at SSRN 3257136. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3257136