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Cash Flow Analysis

Cash flow analysis or cash flow statement analysis is the tool of finance. Like financial and ratio analysis cash flow analysis is also show the strength and weakness of business’s operation and investments and other financial activities. In cash flow analysis, we are interested to know the answer of following questions.

Q:-1 Is company capable to pay the creditors through the amount receivable from debtors?

Ans: For this, we can check the difference between a/cs receivables (debtors) and account payables and if a/cs receivable is more than a/cs payable then it means, we are capable to pay our creditors.

Q: - 2. Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses?

Ans. If there is existence of cash in business after paying current liabilities, then it is sure that we can pay our payroll and other immediate expenses out of balanced money.

Q: - 3 Is the company financially sound?

Ans. Every company’s financial strength can be estimated by checking its liquidity position. For this, it is very necessary to prepare cash flow statement which shows business’s cash inflows and cash outflows and difference will show closing balance of cash. If it is sufficient to pay all the liabilities of business, then I can exhort to you that company is fully financially sound.

Q:- 4. Give the  its example.

Ans. After watching this example you can understand,  we are anlyzing information that we can get from cash flow statement.

Study following Cash flow Statements with direct and indirect methods for deep study of cash flow analysis


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Accounting Education: Cash Flow Analysis
Cash Flow Analysis
http://svtuition.googlepages.com/directmethodofcashflowstatement.PNG
Accounting Education
https://www.svtuition.org/2010/02/cash-flow-analysis.html
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