If I could use only one financial statement to review the overall health of the company, which statement would I use and why?
Cash is king The cash flow statement gives a true picture of how much cash the company generates. Ironically, it often gets the least attention. That being said, it's important to view all three statements to truly get a full picture of the health of a company.
The cash flow statement because it shows the actual liquidity of the company and how much cash it is generating and using. The balance sheet just shows a snapshot of the company at one time, without showing the performance of the company. The income statement has a number of non-cash expenses that may not actually be affecting the company's health. But the key to a great company is generating significant cash flow and also having a heal thing cash balance and this will show on the cash flow statement.
Pick a good answer to this question with justification. There is not a right or wrong answer to this question. I have listed two answers below:
1. Cash is king. The cash flow statement gives a true picture of how much cash the company generates. Ironically, it often gets the least attention.
2. The balance sheet because assets are the true driver of cash flow.
Community answers are written by other candidates practicing this set. Reading how others frame the same question is one of the fastest ways to sharpen your own.
Anonymous Answer
I would use the balance sheet of the company. A balance sheet would help me identify how the net profit YOY growth via retained earnings. in short, by conducting a YOY comparison of different balances in the Balance sheet I can identify which is causing the real Retained earnings growth.
Marcie's Feedback
Good reply! You have clearly explained how you would use the balance sheet to determine the overall health of the company and where its growth is coming from. Good job! Consider mentioning as well that the balance sheet shows you how much debt a company has relative to equity and that being able to view the company's profit margin allows you to understand its financial health.
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