In this case, we are discussing the opposite situation. If the CF in this area is positive, then it means:
- the company is in debt (loads on a new debt via bank tools or via emission of bonds)
- issues new shares (or sells them)
I would like to emphasize that this does not have to be a negative signal in many instances. Companies need to get into debt to carry out their core business or invest, buy new materials, etc. It’s not always negative. However, it should be reminded that it would not be comfortable if the company were still in debt without its core business making money. The shareholders prefer debt financing rather than dilution. If the opposite, its shares would decline in the long run, and the company would not be attractive to shareholders.
As we have explained, CF Statement represents the immediate deep view into CF in the company (for a given reporting period). We can read what happened in the company and how it affected the balance sheet. The balance sheet, in turn, shows us the development of assets and liabilities over time. CF Statement is a crucial section for stock analysis and many times for evaluation of stock via Discounted Cash Flow method.
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