An Examination of Issues Involving the Presentation of Cash Flow Information

Date of Submission


Document Type


Degree Name

Master of Science in Accounting




John Coulter


Cash flow, Financial statements

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1995 no.6


Current thinking concerning common sizing the Statement of Cash Flows is illustrated by Leopold A. Bernstein, in Financial Statement Analysis. Theory, Application, and Interpretation (Richard Irwin, 5th edition, 1993).

This text presented a common sized Statement of Cash Flows based upon calculated percentages where total cash inflows of all kinds = 100%. This presents a problem for both annual calculations and trend analysis when the underlying positive cash inflows from various sources change from year to year. There may also be distortions involved when comparing percentages over time because the basis upon which the percentages are computed, change over time. Additionally, this method is more complicated and time consuming than that employed for either the Income Statement or the Balance Sheet, and precludes the use of algorithmic models in developing the statement.

This thesis examines current literature regarding the Statement of Cash Flows in an attempt to find or develop a more simplistic, straightforward method which provides both consistency over time and an algorithmic method for implementing such a comparison. Its conclusion calls for a very simple, yet effective, measurement for common sizing the Statement of Cash Flows. This is accomplished by utilizing the absolute value of the Net Cash figure provided from all three activities (Operations, Investing and Financing) and dividing each activity subtotal by this absolute number. This calculation immediately shows the importance of each activity subtotal to the enterprise. Additionally, each activity line item would be divided by the absolute value of the activity subtotal to determine its importance in generating or consuming cash resources in relation to the activity subtotal.

Trend analysis performed using this method becomes not only possible, but easily produced and is meaningful for analytical purposes, since it accurately highlights changes in performance and how transactions are reported for each cash flow activity.