Alvarado Ltd., a private company, has reported increasing profit every year for the past five years. Alvarado would like to expand operations by adding three retail stores within the next three years, and is seeking a loan from its bank to help fund the expansion. In Alvarado’s most recent statement of financial position (SFP), the company reported a positive cash balance and a healthy current ratio of 2. Alvarado’s controller believes that a statement of cash flows “would not be useful to the bank manager in making their decision because Alvarado has a solid financial position and has had increasing profit every year for the past five years.” From the perspective of Alvarado’s bank manager,
(a) Discuss the importance of positive cash flows,
(b) Discuss the purpose and usefulness of the statement of cash flows.
