Introduction And Meaning Of Cash Flow Statement
Cash flow statement is a summary of the movement (inflows or outflows) of cash or cash equivalents of a firm. It provides up-to-date information about firm's cash inflows and outflows for a given period of time. It is very useful for cash forecasting, ascertaining liquidity and solvency, making financing decisions and future planning.
Importance Of Cash Flow Statement
Significance or importance of preparing cash flow statement can be highlighted as follows:
1. To Provide Cash Information
Cash flow statement determines the cash position of the firm. It reports about the movement of cash or cash equivalents in the company. So, it is important to understand the sources of cash flows (inflows or outflows).
2. To Ascertain Liquidity And Solvency
Another importance of cash flow statement is that it helps the company to determine profitability, liquidity and solvency position of the company. It provides accurate cash data and information of the business which is useful to ascertain the financial position of the firm.
3. Formulation Of Plans And Policies
It provides information regarding current cash position and estimates future cash needs. It facilitates the management to formulate short-term and long-term financial planning and to make investment decisions.
4. Facilitates Cash Forecasting
It shows current cash position in the business and helps the management to estimate the future financial needs of the firm. So it is used for cash forecasting purpose.
Also Read:
Importance Of Funds Flow Statement
Importance Of Financial Statement Analysis
Meaning and importance of ratio analysis
5. Importance To The Investors
Cash flow statement reveals the financial condition of the business and provides valuable information to the investors or shareholders. So, it helps them to make decision regarding holding or selling shares.
6. Analysis Of Cash Balance
Cash flow statement discourages idleness, shortage and excess of cash in the business which helps to maintain proper cash.
