Question

What is the meaning of the term cash flow? Why is this term subject to confusion and misrepresentation? In addition, discuss the importance to analysis of the statement of cash flows. Identify factors entering into the interpretation of cash flows from operations.

Answer 1

What is the meaning of the term cash flow? Why is this term subject to confusion and misrepresentation?

Cash Flows refers to cash actually come into business less cash outlay/outflow from the business.

The Balance amount which is shown in the cash flow statement is a balance which is available with the company for immediate Purchasing Power.

It involves Actual cash outlay i.e paid out of business but not when actually incurred on accrual basis and both when in case of receipts and Payments actual’s of cash inflow or outflows are only considered

In addition, discuss the importance to analysis of the statement of cash flows.

For Any Business organisation cash flow statement is very important for Planning , Budgeting, Forecasting, analysing ,   estimating the requirements of cash and Inflows of cash thereby enabling whether any amount is required to raise or borrow or Repay the immediate debts .

Identify factors entering into the interpretation of cash flows from operations.

There are many factors which influence the cash flow from operations ,it clearly depends on the business in which it is in existence because ,Some organisations purely depends on the credit facility which is provided by Banks, Financial Institutions, for day to day activities or Working capital requirements.

The organisations who can raise immediate cash by way of loans or other ways , Can Survive in the competitive market by fetching the raw materials on time and Producing and delivering the customer orders on time thereby Surviving in the economy and competitive environment , If the company has lake of Cash resources they have to wait till the cash is available because cash is actually required to bring the raw materials immediately to production and thereby delivering to the customer and due to delay or weak in analyse of the cash flow from operations may probagate to delay in generating the revenue And Some organisations is purely depends on the revenue receipts rather than utilising the credit facility they need very active attention in collecting the revenues.These factors are considered before analysing the cash flow statement.