Cash Flow Analysis

The main objective of the cash flow is to deliver vital information relating to the generation of cash to the users of the financial statement. It also highlights the prospective cash positions, i.e., cash or cash equivalent. This statement can represent the inflows and outflows of money with the help of this statement. However, the primary objectives of the cash flow are:

• Measuring of Cash: Inflows of cash and outflows of money are measured annually, which are aroused from operating activities, investing activities, and financial activities.
  
  
• Generating Cash inflow: Timing and certainty of generating the influx of cash can be known, which directly helps the management make financing decisions in the future.
  
  
• Classification of activities:  the activities are classified as investing activities, and financial activities, which helps a firm analyze and interpret its different kinds of inflows and outflows of cash.
  
  
•  Predicting the future: A cash flow statement, no doubt, forecasts the future cash flows, which helps the management to make different financing decisions.
  
  
•  To Assess liquidity and solvency position: Both the inflows and outflows of cash and cash equivalent can be known, and as such, the liquidity and solvency position of a firm can also be maintained as the timing and certainty of cash generation are known, which helps to assess the capability of a firm to generate its cash.
  
  
• Evaluation of future cash flows: to analyze whether the cash flow from operating activities is sufficient to meet the various kinds of payments, e.g., amount of expenses/debts/dividends/taxes or not.
  
  
• Deliver necessary information to the users: A cash flow statement supplies various details related to inflows and outflows of cash to accounting information's users in these  ways:
  (i) To assess the capability of a firm to pay its obligations as soon as the due date arises;
  (ii) To examine and interpret the various transactions for the future.
  (iii) To view the cash generation ability of a firm;
  (iv)  Ascertain the cash and cash equivalent at the end of the process.
  
  
• Helps the management in ascertaining cash planning: No doubt, a cash flow statement helps the management prepare its cash planning for the future and avoid any unnecessary trouble.

A Cash Flow Statement is beneficial in short-term planning. It is used to meet the various obligations, and a firm needs a sufficient amount of cash.

It helps the financial advisor make a cash flow projection quickly, taking the data relating to cash from the records. As a result, it becomes easy for the advisor to know the cash position, resulting in a surplus or a deficit. However, Cash Flow Statement is an essential financial tool for the management to make an estimate relating to cash for the near future.

Helps to make Cash Forecast
A Cash Flow Statement, no doubt, helps the management to make a cash forecast for the near future. But in addition, a projected Cash Flow Statement helps the administration with the cash position, which is the basis for all operations. Thus, the management sees the light related to cash position, the amount of cash needed for a specific purpose, etc.

Helps the Internal Management
It can help the internal management determine the financial policy to be adopted in the future since it delivers information relating to funds.

To reveal the Cash Position
It is a particular pointer about the movement of cash, i.e., whether there is an increase in money or decrease in funds and the reasons that help the management. Moreover, it explains a small cash balance even though there is enough profitability or vice versa. Besides, the management can compare the original forecast with the actual one to understand the trend of cash movement and the variation.

To Reveal the result of Cash Planning
The Cash Flow Statement analysis reveals how far and to what extent the cash planning becomes successful. The same is possible by comparing the analyzed Cash Flow Statement/Cash Budget and the precise one and the measures accordingly.