Thanks to all who sent in responses to our last question.
Here are two questions for this week. Feel free to reTweet the questions out or forward it on to anyone who may be of interest. And of course, feel free to send in your own answers below in the comment section – we’d love to hear from you!
1 – If I were stranded on a desert island, only had 1 financial statement and I wanted to review the overall of a company – which statement would I use and why?
2 – If depreciation is a non-cash expense, why does it affect the cash balance?
1 – You would want the cash flow statement as it offers the truest picture of how much cash a company is actually generating, independent of all non-cash expenses. This is core in analyzing the overall financial health of any business – it’s cash flow.
2 – While depreciation is a non-cash expense, it’s tax-deductible. Since taxes are a cash expense, depreciation therefore affects cash by reducing the amount of taxes to be paid.