Question

Write any four advantages of preparing Cash Flow Statement.

Hint:

Cash Flow Statement shows actual cash movement and is more reliable than profit figures for analysing liquidity.

Answer 1

A cash flow statement provides important information about actual cash generated and used by a business. Its advantages include:
1. Helps assess short-term liquidity position by showing availability of cash to meet obligations.
2. Assists in financial planning by revealing future cash requirements and sources.
3. Helps evaluate operating efficiency by identifying cash flows from core business activities.
4. Facilitates decision-making on investments, financing and dividend policies by showing real cash movements.