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Business Analysis with Microsoft® Excel, Second Edition by Conrad Carlberg

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Analyzing Cash Flow

As noted previously, there are various reasons that you would want to determine how a company uses its cash assets. The choice to use cash to acquire an asset, meet a liability, or retire a debt is a process of investment and disinvestment, and there are always choices, some smart and some maladroit, that a manager can make. It's important to keep track of how well a company's management is making these choices.

Furthermore, the accrual method of accounting, for all its usefulness in matching revenues with expenses, tends to obscure how cash flows through a firm. One of the purposes of cash flow analysis is to highlight differences between, say, net income and the actual acquisition of cash. For example, accounts receivable ...

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