The types of cash flows a company has, where cash comes from, and what it is used for provides insight into the financial stability of a company. The owners of three companies found the following information on their statement of cash flows: Although each company ended the year with a net increase in cash of $32,000, each company achieved that increase in a different way. If each of these businesses are in different industries or at different stages of their life cycle, the differences in the way the $32,000 was generated may not be a cause for concern. However, if each of these three companies are in the same industry and each has been in business for many years, it appears that the companies Mary Ellen and Lucille own may be in better financial condition than the one owned by Louis. Both Mary Ellen's and Lucille's companies had positive cash flow from operating activities. Louis' day‐to‐day operations resulted in a decrease of $50,000 in cash and because he purchased $100,000 of equipment, he had to finance these amounts by selling stock and borrowing from the bank. Companies use their estimated cash flows to determine what to do with excess cash and whether or not they will need to borrow during a year. This enables the managers to plan for these needs before they have excess cash sitting in a bank account or have run out of cash and need to pay their employees. In addition to short‐term cash needs, cash flow analysis is used for many business decisions, including for example, whether a company should invest in long‐term assets, whether a part should be made or bought, and whether a new market should be opened. External users, such as suppliers, creditors, and potential investors, use the statement of cash flows when analyzing companies to decide whether to sell to, loan to, or invest in a company.