Informational content of the Cash Flow Statement – CFS

Abstract 

This article introduces a deterministic analytical research model to assess the status of financial sustainability and financial solvency of an economic organization, based on the Verticalized Cash Flow Statement (CFS), guided by the Federal Accounting Council (FAC), by the methods direct and indirect. The model was tested using simulated data from NBC TG 03 (R3) and the results show theoretical consistency with weak, strong and insufficient financial sustainability metrics that signal weak, sufficient and insufficient financial solvency, respectively. The informational content of the CFS by the direct method is limited to the restrictions of the cash basis, but by the indirect method it contributes with more comprehensive information because it is guided by the accrual basis. The research contributions are relevant to the liquidity and finance analysis literature, and to guide operators and cash flow managers, based on the aggregates of the vertical CFS, and indicate that the indirect method, even if it does not produce cash flow sustainable, offers more robust informational content for decision making. Keywords: Financial sustainability. Financial solvency. Statement of cash flow from activities. CFS informational content.