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Uses of Cash Flow Statement
Cash Flow statement is an essential tool for short term financial analysis an planning.


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Its main advantages are as follows:

(i) Planning and Co-ordination of Financial Operations. Cash Flow Statement is useful is evaluating Financial policies and current cash position. Since cash is the basis for carrying on operations, the Cash Flow Statement prepared on an estimated basis for the next accounting period will enable the management to plan and co-ordinate the financial operations probably. The management comes to know how much cash is needed in the future and at what time and how can it be arranged-how much internally and how much from outside. It is especially useful in preparing cash budgets.

(ii) A Control Device. Cash Flow statement is also a control device for the management. A comparison of cash flow statement of previous year with the budget for that year would indicate to what extent the resources of the enterprise were raised an applied according to the plan. Thus a comparison of original forecast with actual results may highlights trends of movement that might otherwise go undetected.

(iii) Useful to internal Financial Management. Since it gives a clear picture of cash inflow from operations (and not income flow of operation), it is, therefore, very useful to internal financial management in considering the possibility of retiring ling-term debts, in planning replacement of plant facilities or in formulating dividend policies.

(iv) Profit and Cash Positions. It enables the management to account for situation when business has earned huge profits yet run without money or when it has suffered a loss and still has plenty of money at the bank.

(v) Short-term Financial Decisions. Cash Flow Statement helps the management in taking short-term financial decisions. Suppose, if firm wants to know its state of solvency after one month from to date, it is possible only from Cash Flow analysis and not from Fund Flow Statement. Shorter the period, greater is the importance of Cash Flow Statement.


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