Global Journal of Management and Business Research, C: Finance, Volume 22 Issue 5

Does the Formal Structure of the Cash Flow Statement have an Impact on the Understanding of the Data Contained in the Report Explaining the Company's Financial Dynamics? Prof. Maria Silvia Avi Abstract- The financial analysis of a company, implemented through ratios alone, can lead to making completely erroneous judgements about the dynamic development of the company's income and expenditure. For this reason, cash flows and the statement that summarises them represent essential elements of the study of the company's financial performance. Various international bodies have addressed this issue since, in most countries, the cash flow statement now identifies one of the elements that make up the financial reporting for the year, on par with the balance sheet and profit and loss. Here we will take a closer look at the central bodies that have addressed this issue and illustrate what has been said about cash flow and the cash flow statement by the American FASB, the IASB, the Italian Civil Code and the Italian Accounting Standards Board. As you will see, all of these bodies propose structures or examples of items requiring the highlighting and re- grouping of needs and sources into three aggregates: operating activities, investing activities and financing activities. Subsequently, we will point out that information limitations characterise these statements. Therefore we will propose drafting a report structured according to the logic of an integrated information system, i.e. a system in which all the documents forming part of financial reporting and management control are consistent at a substantial and formal level and, therefore, at the level of the terminology used. I. T he F inancial D ynamics of B usiness: I ntroductory C onsiderations 1 company's financial and asset analysis requires the performance of two complementary types of research that complement each other. Author: Full Professor in Business Administration, Management Department- Ca’Foscari Venezia, S. Giobbe – Cannaregio 873- 30121 Venezia (Italy). e-mail: avi@unive.it ORCID ID: orcid.org/0000-0003-11164-4410 Absolute values lose their informative weight if not compared with related amounts. For this reason, the integrated analysis system is implemented partly through indicators that compare corresponding data. In the first instance, it is advisable 1 1 To facilitate reading, I have decided not to include in the text, except in exceptional cases, the names of the scholars who have dealt with the subject under analysis since the bibliography is endless, I have opted not to indicate all the terms of the scholars in the text because this would have meant a continuous interruption of the reading of the complete sentence in which I express my thought. to identify ratios determined based on the balance sheet results (and sometimes some profit and loss figures). We have already pointed out how a clear-cut distinction between financial and income analysis makes no sense since every financial reporting figure is interrelated with every other value in that document. The difference between financial/equity analysis and the study of corporate profitability is, in reality, a necessary didactic exemplification to explain the unique tools used in the integrated analysis system. The precise understanding of the company's situation, therefore, requires that, in the light of the explanations below concerning the individual ratios/flows/aggregates, the analyst can give a global picture of the company's conditions which, necessarily, must be implemented through the communication of the inter-connections that can be identified between the indicators and aggregates used to carry out the study on financial reporting and to lay the foundations for company planning. For the reasons mentioned above, it is not even possible to subdivide, in a precise manner, the financial ratios from the so-called asset ratios. Therefore, we will speak of financial/asset analysis to highlight, from a purely terminological point of view, how separating the two types of research is impossible. The study of financial/equity conditions must, subsequently, be analysed in the light of the so-called income ratios, which, due to the intrinsic connections with financial reporting data, cannot but have connotations of a financial nature. A 9 Global Journal of Management and Business Research Volume XXII Issue V Version I Year 2022 ( ) C © 2022 Global Journals Keywords: cash flow Statement, cash flow, net working capital, cash flow, formal structure of the cash flow Statement, operating activities, financing activities and investing activities, direct method of drafting cash flow Statement, indirect method of preparing cash flow Statement.