USEFULNESS OF THE CASH FLOW STATEMENT COMPARED TO THE INCOME STATEMENTPART 1:A. A cash flow statement records the actual movement of a company's cash, showing where the money came from and how much was actually paid out during the year. The cash flow statement records cash movements resulting from three activities: management, financing and investing. Operating activities adjust profit to non-monetary earnings and expenses and the change in working capital and provide the cash actually received after carrying out operations. Financing activities record the financing of the company, and investing activities record the capital expenditures of a company. It basically shows a company's ability to generate cash, as many businesses earn profits but fail due to the inability to meet their cash needs. Investors use the cash flow statement to calculate "free cash flow," which is calculated by deducting capital expenditures from net cash from operating activities. This shows investors how much cash the company has available to pay its dividends. The cash flow statement is also useful for existing investors to see where money is spent and how it is used (Daniel, Denis & Naveen 2010). B.• Liquidity: A company's liquidity depends on the amount of liquid assets it has, which are cash or assets that can be easily converted into cash. The cash flow statement shows the amount of money coming in and out of the company, so it shows how liquid a company is and how flexible it is to deal with emergencies. Working capital is a significant part of cash flow analysis, it is made up of current assets minus current liabilities and can help assess the company's liquidity for upcoming accounts......middle of the paper... ... the company's flexibility to deal with emergencies. Therefore, since the cash flow statement generates free cash flows, it can be said that it could be more useful for investors, however, both ratios should be used to make a more reliable decision (Fight, A, 2005).REFERENCES • Daniel , N, Denis, D & Naveen, L . (2010) Sources of financial flexibility: evidence of cash flow shortfalls*.[Online] p.2-20. Available from: http://business.nd.edu/uploadedFiles/Faculty_and_Research/Finance• Fight, A. (ed.) (2005), Cash Flow Forecasting, Butterworth-Heinemann, London.• Sinha, G, 2009, Financial Statement Analysis, PHI learning private limited, New Delhi.• Du 2014, Annual Report 2013, accessed 22/04/2014, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NTM3Mzk4fENoaWxkSUQ9MjI2MjMyfFR5cGU9MQ==&t=1 • Access date: 04/21/2014, www.investopedia.com