Cash flows indicate the Direction

Cash flow indicate the direction of the organization and clearly explain the long term plan of the management. The management is planing for expansion then it would be reflected in the investing section of the cash flow and there would be a huge movement in that section of cash flow.


However if management believe that more depth in current business is required this is also be reflected in the investing activities and entity would be purchasing the fixed asset for the current business expansion .

Management plan to back the entity profit with asset may also be seen in the cash flow and management would be heavily investing on fixed asset.


Management plan to maximize the profit would be reflected by a huge activity level would be observed in operating section of the cash flow.

Management future planing about the equity structure and financing methodology is also reflected in the financing activity portion. The new introduction of capital in financing activity is a clear indication of more reliance on equity.