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Which financial statement would be most useful to an analyst who wants to evaluate a company's liquidity position and financial flexibility?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
Answer: C
Liquidity relates to how easily a firm can convert assets into cash in relation to those short-term liabilities that need to be paid. Financial flexibility relates to a firm's ability to handle unforeseen downturns in its business environment or take advantage of investment opportunities. As such, it makes the most sense that the balance sheet would be the primary financial statement used to evaluate a company's liquidity and financial flexibility It may not however provide a clear picture of liquidity unless it is used to evaluate a company s liquidity and financial flexibility. It may not, however, provide a clear picture of liquidity unless it is used in combination with the cash flow statement.


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