Statement of Cash Flow

 Statement of Cash Flow

 

A cash flow statement is a  financial statement that gives total information about all of the cash inflows a business makes from continuing activities and outside investment sources.

1. It's compulsory for Listed Company.
2. All Accounts detailed are in the notes form.
3. Financer take all decisions with the help of this statement.
4. Checking the change in the starting balance and ending balance to see why the change has occurred is also called Statement of Cash Flow.

FOR EXAMPLE:

Starting balance ( Change ) Ending balance

50000                 (30000)      80000

Current Year Balance ( Related to ) Ending Balance

Previous Year Balance ( Related to ) Opening Balance

Objective of Cash Flow Statement:

The main goal of a cash flow statement is to give those who utilize financial statements the required data regarding the creation of cash. Additionally, it emphasizes any future or potential monetary holdings, such as cash or cash equivalent.

The main Objective of Statement of Cash Flow are:

1. Measurement of Cash
2. Creating Cash Inflow
3. Classification of activities
4. Future Prediction
5. evaluating the solvency and liquidity position
6. Supply necessary information to financers
7. Evaluation of future cash flow

 Importance of Cash Flow Analysis:

Cash flow statements are especially useful for short-term planning. Companies need sufficient cash resources to meet their various obligations (for example, paying expenses, buying fixed assets, paying dividends and taxes, etc.).

It helps financial managers make near-term cash flow forecasts by capturing cash-related data from historical records. This way, it becomes easier for him to know his cash position, which can lead to either a surplus or a deficit. However, the cash flow statement is an important financial tool for management to make projections about cash in the near future.

Useful for creating liquidity forecasts.

There is no doubt that the cash flow statement will help management predict liquidity in the near future. Predicted cash flow statements help you manage the cash positions that underlie all operations. How much cash do you need for a particular purpose, the cause of internal and external problems, etc.

Support internal management:

It provides information about funds and thus helps internal managers to determine future financial policy. Decisions such as replacement of fixed assets and repayment of long-term debt.

Displaying cash positions:

This is an important indicator of cash movement. i.e. Whether there is an increase or decrease in cash, and why, will help management. It also explains why you have a good profit but your cash balance is low, or vice versa. Management can also compare the original forecast with the actual forecast to understand trends in cash movements and their variability.

Shows the results of the liquidity plan.

Analysis of the cash flow statement shows how and to what extent the liquidity plan will lead to success. You can do the same by comparing forecasts and actual cash flow statements/cash budgets and taking appropriate action.