Write Short Notes on Importance of Cash Flow Analysis.
Answers
IMPORTANCE OF CASH FLOW STATEMENT
1) Short term planning
2) Cash flow helps in assessing liquidity and solvency
3) Efficient cash management
4) Comparative study
5) Reasons for cash position
6) Evaluate management decision
7) Dividend decision.
It is a really useful measure of financial performance – that tells a better story than net income — because it shows what money the company has left over to expand the business or return to shareholders, after paying dividends, buying back stock, or paying off debt.The cash flow report is important because it informs the reader of the business cash position. For a business to be successful, it must have sufficient cash at all times. It needs cash to pay its expenses, to pay bank loans, to pay taxes and to purchase new assets.
Advantages of Cash Flow Statement
Cash Flow Statements help in knowing the liquidity / actual cash position of the company which funds flow and P&L are unable to specify. Any discrepancy in the financial reporting can be gauged through the cash flow statement by comparing the cash position of both.Jul 15, 2017