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Article: Direct approach to cash flows enhances credit analysis.
- Article from:
- Business Credit
- Article date:
- April 1, 1992
- Author:
CopyrightCOPYRIGHT 1992 National Association of Credit Management. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Credit analysts tend to agree that the direct presentation of operating cash flows in the statement of cash flows is the preferred approach. This view has been supported by the Accounting Policy Committee (APC) of Robert Morris Associates (RMA), which lobbied the Financial Accounting Standards Boards (FASB) during its deliberations on requiring the statement of cash flows. Despite the show of support for the direct method, the FASB elected to recommend rather than require its use.
For this reason, a majority of firms continue to report cash flows from operations using the indirect method. As a result, credit analysts may not have access to the information ...