Knowing Cash Flow Statement Meaning with Forecast Objectives

Cash Flow Statement Meaning and Objectives forecast:-

     When statement of changes in financial position is prepared by tasking cash as the basis, it is known as cash Flow Statement. It deals with preparation and presentation of statement of changes in cash flow. Where cash flow means the movement of cash in and out of a Business. Here, cash includes cash in Hand, cash at Bank and cash equivalents assets.

      Cash Flow Statement can be defined as a statement which summaries sources of cash inflows and uses of cash outflow of a firm during a particulars period of time, say a month or a year.

     Cash flow statement is an additional information of users of financial statements. CFS show the incoming and outgoing of cash. CFS assesse the capability of the business firm to generate cash utilize it. CFS is undoubtedly a tool assessing the liquidity and solvency of the business firms.

Objectives:-

The Basic objectives of cash flow statement is highlight the changes in cash position including the sources from which cash flow obtained by the enterprises and species uses to which cash was applied. A cash flow statement have the following objectives.

a.To Depict inflows and outflows

b. To reveal good and bad points relating to the management of cash

c. To facilitate formulation of financial policies such as dividend policy etc.

   d. To ascertain the liquidity of the enterprise.

e. To ascertain the net change in cash and cash equivalents.

f. To study the trend of cash receipts and cash payments.

g. To know the deviation of cash from earnings.

h. To enable a more realistic assessment of the financial condition of the enterprise and to anticipate the cash position

The Main Objectives of cash Flow Statement:-

Cash Flow Statement is prepared an objective to highlight sources and uses of cash and cash equivalents for a period. Following are some main objectives of preparing Cash Flow Statement.

1.Helpful in Short-term Financial Planning: Cash Flow Statement provides information regarding sources and uses of cash and cash equivalents during a specific period, therefore, it becomes easier for the management of plan operating, financial and investment needs of the business concern.
 

2.  Helps to Understand Liquidity and Solvency: Solvency is the ability of the business to pay its current liabilities. Cash Flow Statement prepared on monthly or quarterly basis helps to ascertain liquidity in a better way. Financial institution and banks usually prefer CFS to analyses liquidity of the firm.

3. Efficient Cash Management: Cash Flow Statement provides reformation relating to surplus or deficit of cash. A business firm, therefore can decide about the short-term investment of the surplus amount and can arrange short-term credit in case of deficit.

4. Comparative Study: A comparison of cash flows of the months/years with the budgeted figures will indicate as to that extent the cash resources of the business were generated and used according to the plan i.e Cash Budget. Causes of variances between the figures of two statement CFS and Cash Budget) can be analyzed and proper corrective measures may be taken.

5. Helpful in Historical Analysis: The financial decisions taken in the past can be evaluated on the basis of information supplied by Cash Flow Statement. Certain interesting information such as (i) shortage of cash to pay dividend even though these are sufficient profits or (ii) what happened to the huge cash received from the sale of land, etc. can be obtained from Cash Flow Statement.


6. Proper Study of Cash Receipts and Payments: Cash Flow Statement reveals the speed at which the cash is being generated from debtors, stock, other current assets and the speed at which the current liabilities are being paid. It enables the management to assess the true position of the cash in future.

7. Knowledge of Deviations of Cash from Earnings: Cash Flow Statement explains the reasons from lower and higher cash balance with the firm. Sometimes, a lower cash balance is found in spite of heavy profits or higher cash balance is found in spite of lower profits. Reasons for such situations can be analyzed with the help of Cash Flow Statement.

8. Helpful in determining Cash Flows: Cash Flow Statement aims at highlighting the cash flow from operating, investing and financing activities separately. It indicates how much cash has been generated or used in these activities as required under AS-3.

 9. Helpful in Dividend Decision: Dividend must be paid within42 days of its declaration. Therefore, before declaring the dividend management takes the help of Cash Flow Statement to ascertain the position of cash generated from operating activities which can be used for payment of dividend.

 10.Tool of Planning: Cash Flow Statement can be used as the basis for projecting future, investing and financing plans by the management of a business firm. Payment of long term loans, expansion and modernization of the plant and payment of dividend can be planned on the basis of information supplied by Cash Flow Statement.

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