Advantages and Disadvantages of Cash Flow Statement
Cash
flow statement is a statement which shows how the operations of the company
affects the cash position of the company during a financial year and therefore
companies usually make both cash and funds flow statement. Given below are some
of the advantages and disadvantages of cash flow statement.
Advantages
- It shows the actual cash
position available with the company between the two balance sheet dates
which funds flow and profit and loss account are unable to show and
therefore it is important to make a cash flow report if you want to know
about the liquidity position of the company.
- It helps the company in making
accurate projections regarding the future liquidity position of the
company and hence arrange for any shortfall in money by making
arrangements in advance and if there is excess than it can help the
company in earning extra return out if idle funds.
- It acts like a filter and is
used by many analyst and investors to judge whether company has prepared
the financial statements properly or not because if there is any
discrepancy in the cash position as shown by balance sheet with cash flow
statement then it means that statements are incorrect.
Disadvantages
- Since it shows only cash
position, it is not possible to arrive at actual profit and loss of the
company by just looking at this statement alone.
- In isolation this is of no use
and it requires other financial statements like balance sheet, profit and
loss etc., and therefore limiting its use
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