05-05-2012, 02:48 PM
NATURE OF CASH FLOW STATEMENT
Cash flow statement shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period. The primary objective of cash flow statement is to provide useful information about cash flows of an enterprise during a particular period under various heads, i.e. operating activities, investing activities and financing activities.
BENEFITS OF CASH FLOW STATEMENT
Cash flow statement provides the following benefits:
A cash flow statement when used along with other financial statements provides information that enables users to evaluate changes in net assets of an enterprise,its financial structure and its ability to affect the amounts and timings of cash flows in order to adapt to changing circumstances and opportunities.
Cash flow information is useful in assessing the ability of the enterprises to generate cash and cash equivalents and enables users to develop models to access and compare the present value of the future cash flows of different enterprises.
It also enhances the comparability of the reporting of operating performances by different enterprises because it eliminates the effects of using different accounting treatments for the same transactions and events.
Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash flows. It is also helpful on checking the accuracy of past assessments of future cash flows and in examining the relationship between profitability and net cash flow and impact of changing prices.