Objects of Cash Flow analysis
The main object of cash-flow analysis is to show the causes of changes in cash balances. The Funds-Flow Statement reveals the causes of change in net working capital and informs the management on the liquid position of .the company. But, when management is interested to know about the movement of cash and the availability of cash, the cash-flow analysis provides this information to management.
Cash-flow analysis is not only concerned with the good or bad management of cash, it is deeply concerned with the liquidity position of the firm. In a cash-flow statement, the term ‘fund’ is used to mean only cash and does not include even most liquid current assets (but not cash itself) like readily reliable account receivables. Since cash-flow statement is made to show the impact of financial policies and financial procedures on the cash position of the firm, it takes into consideration all transactions that have a direct impact upon cash.
The next main object of cash-flow analysis is to throw light on the factors contributing to the reduction of balance of cash inspite of increase in profits of vice versa. Cash-flow analysis is of particular importance in short-range planning. It helps the management in short-term financial decisions relating to liquidity and ways and means position.
Tags: cash flow, funds flow
