how cash flow statements work
every company that sells and offers its stock to the public must file financial reports and statements with the u s securities and exchange commission sec 2 the four main financial statements are 3there are two different methods of accounting they are 4profitable companies can fail to adequately manage cash flow which is why the statement is so important for prospective investors and business analysts let s consider a company that sells a product and extends credit for the sale to its customer even though it recognizes that sale as revenue the company doesn t yet have the cash nevertheless it earns a profit on the income statement and pays income taxes on that profit if it does this too often it faces the danger of running out of cash despite technically being profitable investors and analysts should use good judgment when evaluating changes to working capital as some companies may try to boost their cash flow before reporting periods 