Analyzing Cash Flow Patterns Paula Dalton is a security analyst for DJM, Inc. She claims that she can tell a great deal about companies by analyzing their cash flow patterns. Specifically, she looks at the negative or positive cash flow trends in the three categories on cash flow statements. Paula thinks this information is even more valuable than net income trend data from income statements. She illustrates her theory with the following patterns of cash flows for Abbott Company over the past three years.

How do you think Paula would analyze these results? Do you agree that analyzing cash flow patterns provides superior analytical information?

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Net income Cash flows from: Operating activities Investing activities Financing activities + + 1 2009 2008 2007 ++1 + + +++