New Investing and Financing Activity Ratios from the Statement of Cash Flows Enhance Traditional Ratio Analysis in Assessing Future Cash Flows

In November 1987, the Financial Accounting Standards Board (FASB) replaced the Statement of Changes in Financial Position with the Statement of Cash Flows (SCF). The intent is to provide better information to decision makers when the new statement is used in conjunction with the other financial statements. When the new investing and financing data from the SCF are merged with data from the other financial statements, new ratios may be developed to provide a more comprehensive analysis of capital structure. A refinement in the format of the SCF is suggested. Statement preparers may group essential investing and forecasting activities according to individual needs or preferences. By simply employing an ordered grouping of activities within the investing and financing sections, the readability and comparability of the SCF can be improved. It is shown how the refined format may be applied in terms of new investing and financing ratios to complement traditional financial ratio analysis.