ADVANTAGES OF CASH FLOW
HELPS IN EFFICIENT CASH MANAGEMENT
Cash flow analysis helps in evaluating financial policies and cash position. Cash is the basis for all operations and hence a projected cash flow statement will enable the management to plan and coordinate the financial operations properly.
The management can know how much cash is needed, from which source it will be derived, how much can be generated internally and how much would be obtained from outside.
HELPS IN INTERNAL FINANCIAL MANAGEMENT
Cash flow analysis provides information about funds which will be available from operations. This will help the management in determining policies regarding internal financial management, e.g. possibility of repayment of long term debts, dividend policies, planning, replacement of plant and machinery, etc.
DISCLOSES THE MOVEMENTS OF CASH
Cash flow statement discloses the complete story of cash movement. The increase in or decrease of cash and the reason therefore can be known. It discloses the reasons for low cash balance in spite of heavy operating profits or for heavy cash balance in spite of low profits. However, comparison of original forecast with the actual results highlights the trends of movements of cash which may otherwise go undetected.
DISCLOSES SUCCESS OR FAILURE OF CASH PLANNING
The exteral of success or failure of cash planning can be known by comparing the projected cash flow statement with the actual cash flow statement and necessary remedial measures can be taken.