UTILITY OF CASH FLOW ANALYSIS
A cash flow statement is useful for short-term planning. A business enterprise needs sufficient cash to meet its various obligations in the near future such payment for purchase of fixed assets, payment of debts maturing in the near future, expenses of the business, etc.
A historical analysis of the different sources and applications of cash will enable the management to make reliable cash flow projections for the immediate future.
It may then plan out for investment of surplus or meeting the deficit, if any. Thus, cash flow analysis is an important financial tool for the management.