UTILITY OF CASH FLOW STATEMENT - Accounts and Finance for Managers

Utility of Cash Flow Statement

Utility of cash flow statements are as follows:

  • To identify the reasons for the reduction or increase in the cash balances irrespective level of the profits earned by the firm.
  • It facilitates the management to maintain an appropriate level of cash resources.
  • It guides the management to take futuristic decisions on the prospective demands and supply of cash resources through projected cash flows.

How much cash resources are required?
How much cash requirements could be internally settled?
How much cash resources are to be raised through external sources?
Which type of instruments are going to be floated for raising the required resources?

  • It helps the management to understand its capacity at the moment of borrowing for any further capital budgeting decisions.
  • It paves way for scientific cash management for the firm through maintenance of an appropriate cash levels i-e optimum level cash of resources.
  • It avoids in holding excessive or inadequate cash resources through proper planning of cash resources.
  • It moots control through identification of variations occurred in the cash expenses and expenditures.

Cash Flow Statement vs Fund flow statement

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