Importance of Cash Flow Statements in Stock Picking

“Revenue is vanity, profit is sanity, but cash is king”. This common consensus was used by former Volvo CEO Pehr Gyllenhammar in 1988 while discussing the global stock market crash of 1987. During that time, companies with ample cash reserves weathered the markets better than those who had poor cash management. When evaluating stocks, we can employ a number of relevant metrics. However, one of the most effective measures is also one of the most frequently overlooked. Cash flow statement is an excellent indicator of a company’s financial health. Since it is the ultimate measure of how the business is doing, cash flow statement is an important indicator for investors when determining whether the company is making or losing money.