Question

4. One tool of financial analysis to examine a firm’s performance is cash flow analysis. Explain the advantages of the cash flow analysis for company minimum 5 items.

Answer 1

Advantages of cash flow analysis for the company will be as follows-

A.it will be helping in determination of the financial soundness of the firm in the long run

B.it will also be reflecting the liquidity position of the company and reflecting the current ratios and the quick ratio of the company.

C.it will reduce any kind of risk related to financial distress and insolvency because company will have enough cash to repairs debt and interest.

D. This analysis will also be helpful in determination of the value of the company in terms of the cash generation and it is always looked by various investors rather than looking at the profit statement of the company..

E. Cash flows are also treated as blueprint of the performance of the company in the future and it is calculated after taking into consideration various kinds of financing and investing and operating activities so it is a complete method in order to determine the performance of the company in order of cash flow generation.

so it can be said that the cash flow generation is an important factor in determination of the liquidity and solvency of the company and it is used by a large number of companies