Advantages & Disadvantages of Cash Flow Statement

Posted on Wednesday, September 30, 2009
This was posted in Accounting and Finance

Advantages of Cash Flow Statement:
1. It helps the newly formed companies to know their inflow and outflow of cash.
2. It helps the investors to judge whether the company is financially sound or not.
3. It helps the company to know whether it will be able to cover the payroll and other expenses.
4. It helps the lenders to know the company’s ability to repay.
5. A cash flow statement is provided on monthly basis or quarterly basis or six monthly basis or yearly basis.
6. These statements help to have an accurate analysis of the firm’s ability to meet its current liabilities.
7. A cash flow statement is helpful for planning and managing future financial commitments.
8. A cash flow statement summarizes the company’s cash receipts and cash payments over a period of time.
9. It is useful for determining the short term ability of the concern to meet its liabilities as it does not include non cash items.
10. A cash flow statement gives vital information not only about the company’s performance but also about its major activities during the year.

Disadvantages of Cash Flow Statement:

1. By itself, it cannot provide a complete analysis of the financial position of the firm.
2. It can be interpreted only when it is in confirmation with other financial statements and other analytical tools like ratio analysis.

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