Cash Flow Statement: Meaning, Objectives and Limitations

Presentation deals with meaning of cash flow, its objectives and limitation.

1. Cash Flow Statement
Lecture:1
Y Meaning
Y Objectives
Y Limitation

Prepared By: Neeti Gupta

2. MEANING

Tool of Financial Statement An alysis

Concerned with inflow(receipts) and outflow (payment) of cash at

a single point of time

It excludes transactions that do not directly affect cash inflow or
outflow. Examples:

— Depreciation

— Bad debt

— Writing off preliminary expenses etc

Prepared By: Neeti Gupta

3. Types of Cash-FlowActivities

Prepared By: Neeti Gupta

4. OBJECTIVES

Helps in short-term financial planning as it provides information
regarding sources and utilization of cash

Evaluation of liquidity and solvency position of a firm by
assessing the ability of the firm to generate cash

Helps management to ascertain cash planning

H elpsfirm to assess the ability to pay its obligations in time
Provides information for evaluating changes in assets, liabilities
and equity

Helpful in ascertaining cash flow from operating, investing and
Pring activities mer $ 5 il

N udy ofthe trend of cash flows from various activities

Prepared By: Neeti Gupta

5. LIMITATIONS

It fails to present the net income of a firm as it doesn’t consider
non-cash items

It doesn’t represent the real liquidity position of the firm. It only
presents cash position of a given period

Asitis based on historical cost it doesn't project future cash flows
It doesn’t give complete picture of the financial position of the
business as it is not based on accrual concept

Inter-industry comparison is not possible as it doesn’t measure

economic efficiency

Prepared By: Neeti Gupta