How can you tell if the buildup in plant and equipment has been financed in a satisfactory manner ?
Hοw саn уου tеll іf thе buildup іѕ satisfactory bу reviewing a cash flow statement?
Take a look at the investing activities section and see how much was spent on acquiring new plant and equipment, then see how much new loans or borrowing was obtained by looking at the financing activiites section. It would be excellent if the plant and equipment was financed by cash from operating activities instead of by borrowing, since that would mean that the company was generating enough cash flow to finance not just its operations, but its capital expansion. Borrowing incurs interest expense. Of course, if you’ve everyplace better to park your excess funds and can earn a better return than what you’re paying on your loans, it might make sense to get the loan, but it’s unlikely.