Deciphering Statement of Cash Flows in Malawi

Abstract

Users of financial statements heavily rely on the Statement of Cash Flows to gauge a reporting entity’s liquidity to accommodate cash payout as and when obligations fall due. Financial analysts spend considerable effort to decipher hidden clues on how a reporting entity will perform in the near future through adoption of appropriate ratios and trend analysis to assist both current and prospective investors as well as other relevant users of financial statements make well informed decisions. Reporting entities are motivated to adopt effective cash management strategies if there is evidence that investors and lenders are keen to see satisfactory cash figures. This paper has however noted that listed companies in Malawi are not keen to manage cash effectively principally because most listed companies are attached to particular banks and therefore guaranteed of cash injections. Consequently, listed companies pose significant risks to their investors and the general public as banks expose themselves unnecessarily. The Capital Market Regulators should devise policies regarding cash management to avert probable economic catastrophe.