Meaning of Cash Flow Statement:
A cash flow statement is a financial report that manifests cumulative information regarding the entire cash inflows a company profits from its ongoing progress and external financing sources, as well as all cash outflows that fund for trading pursuits and finances during a delivered time. To put it in other words, a cash flow statement is a financial statement that estimates the cash produced or used by a firm in a presented time.
Objectives of Cash Flow Statement:
A Cash flow statement depicts inflow and outflow of cash and cash equivalents from different pursuits of a firm during a particular time. The primitive intention of cash flow statement is to furnish beneficial data about cash flows (inflows and outflows) of a firm during a precise period below multiple heads, i.e., operating pursuits, investing pursuits and financing pursuits. Students can go through the below provided 3 intentions of Cash Flow Statement:
- Measurement of Cash: Cash inflows and outflows can be evaluated annually which occur from operating and financing pursuits.
- Generating Inflow of Cash: Timing and fact of producing the inflow of cash can be known which directly assists the administration to take financing settlements in future.
- Assessing Liquidity and Solvency Position: Inflows and outflows of cash and cash equivalent can be known, and, as such, liquidity and stability condition of a firm can also be proclaimed as timing and reality of cash engendering is perceived, i.e. it assists to evaluate the capability of a firm to generate cash.
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Cash flow statement renders the following advantages:
A cash flow statement when employed along with other financial reports gives the date that permits users to assess variations in net assets of a firm and its economic system (involving its liquidity and stability) and its capability to influence the amounts and timings of cash flows in order to adjust to varying conditions and possibilities.
Cash flow data is helpful in evaluating the capability of the firm to produce cash and cash equivalents and permits users to generate models to evaluate and analyse the existing value of the expected cash flows of various companies.
It also assists in stabilising its cash inflow and outflow, following in acknowledgement to the varying situation. It is also essential in verifying the correctness of prior estimates of anticipated cash flows and in exploring the association between profitability and net cash flow and the result of varying cost prices.
The above mentioned is the concept, that is elucidated in detail about the Cash Flow Statement – Meaning, Objectives and Benefits for the class 12 Commerce students. To know more, stay tuned to BYJU’S.