• Cash from operating activities can be compared to the company’s net income to determine the quality of earnings. If cash from operating activities is higher than net income, earnings are said to be of “high quality.”
  • This statement is useful to investors because, under the notion that cash is king, it allows investors to get an overall sense of the company’s cash inflows and outflows and obtain a general understanding of its overall performance.
  • If a company is funding losses from operations or financing investments by raising money (debt or equity) it will quickly become clear on the statement of cash flows