S11-2. (Learning Objectives 1, 2, 3: Explaining the purposes of the statement of cash flows)

Fondue Ltd. has experienced an unbroken string of nine years of growth in net income. Nevertheless, the company is facing bankruptcy. Creditors are calling all of Fondue’s loans for immediate payment, and the cash is simply not available. It is clear that the company’s top managers overemphasized profits and gave too little attention to cash flows.

Requirement 1. Write a brief memo, in your own words, to explain to the managers of Fondue Ltd. the purposes of the statement of cash flows.