The statement of cash flows is a key component of Standard & Poor’s Ratings Services’ corporate credit analysis, and the comparability of this information between peer companies is critical. The problem is that no two statements of cash flows are alike. To deal with these inconsistencies in financial reporting, we often make adjustments to the reported amounts and, at other times, consider these differences qualitatively (see “Corporate Methodology: Ratios And Adjustments,” Nov. 19, 2013). In our view, there are ways to improve the transparency and comparability of the statement of cash flows to better enable financial statement analysis.
(Watch the related CreditMatters TV segment titled, “The Statement Of Cash Flows: Avoiding Analytical Pitfalls,” dated Sept. 25, 2012.)