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Summary

In this chapter, you learned how to analyze working capital, its sources and uses, to move beyond the information in the balance sheet and income statement. Working capital is an important gauge of a company's financial health, and it can be hidden by the accrual basis used by other analyses.

This chapter also described how to analyze the flow of cash into, through, and out of a company as a result of its transactions. Because cash is the most liquid form of working capital, it is an important component of many financial ratios used by investors and potential creditors; you will learn more about these in Chapter 7, “Ratio Analysis.” Cash flow analysis is also an important means of understanding the difference between such items as net income and actual receipts.


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