Question

Explain Limitations of Cash Flow Analysis

Answer 1

Answer:

The limitations of cash flow statement are as follows:

Fails to Present Net Profit: The cash flow statement fails to present the net income of a firm for the period as it ignores non-cash items which are considered by Profit and Loss Statement. ... However, it can be used as a supplement to the income statement.

Answer 2

Explanation:

The limitations of cash flow statement are as follows:

The limitations of cash flow statement are as follows:Fails to Present Net Profit: The cash flow statement fails to present the net income of a firm for the period as it ignores non-cash items which are considered by Profit and Loss Statement. ... However, it can be used as a supplement to the income statement.

They use this information to fill in their best estimate. However, their estimate can often prove to be wrong, giving an inaccurate picture of future cash flows. Relying on rough estimates thus is a major disadvantage of the cash flow forecast.

Cash Flow Statement facilitates to prepare sound financial policies. It also helps to evaluate the current cash position. 2. A projected Cash Flow Statement can be prepared in order to know the future cash position of a concern so as to enable a firm to plan and coordinate its financial operations properly.

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