What are the benefits & advantages of using cash flow statement?

 Let us see, as to, what are the benefits and advantages of using a cash flow statement. How this could help in a business entity as well. 

 A cash flow statement is a statement of cash inflow and cash outflow in a business enterprise. Cash flow here includes cash in hand and cash and cash equivalents. Cash and cash equivalents are short term highly liquid investments that are easily convertible into cash. For example, short term deposits with the bank are easily convertible into cash, other short term investments are easily convertible into cash.

The top 7 benefits and advantages of using of Cash flow statement are:

1. Assists in ascertaining Profitability and Liquidity Positions

The Cash Flow Statement helps the management to ascertain the liquidity and profitability position of businesses. Liquidity refers to one’s ability to pay the obligation as soon as it becomes due. Since it presents the cash position of a firm at the time of making the payment it directly helps to verify the liquidity position, the same is applicable for profitability.

2. Assists in ascertaining Capital Cash Balance

This also helps to verify the capital cash balance of businesses. If the capital cash balance is determined, businesses can verify the idle and/or excess and/or shortage of cash position. After verifying the cash position, the management can invest the excess cash or borrow funds from outside sources accordingly to reach the cash loss.

3. Assists in effective Cash Management

If this is properly prepared, it becomes easy for you to manage the cash. The management can prepare an estimate about the multiple inflows of cash and outflows of cash so that it becomes very helpful for them to make future plans.

4. Assists in Planning and Coordination and budgets preparation

This statement is planned on an estimated basis meant for the successive year. This helps the management to understand how much funds are needed and for what purposes, how much cash is generated from internal sources, how much cash can be procured from outside the business. It also helps to prepare cash budgets. Thus, the management can coordinate various activities and prepare plans with the help of this statement.

5. The cash basis method is a reliable and effective tool for business

As several technical adjustments are made in the latter case, Cash Flow Statement is more reliable than collecting the basis of accounting.

6. Depicts the fluctuations in cash flow

A Cash Flow Statement presents the management of the flows in and flows out of cash for various purposes based on which future estimates can be prepared.

7. Assists in depicting cash flow performance

By comparing the actual Cash Flow Statement with the projected Cash Flow Statements, the management can evaluate or appraise the performances regarding cash. If any unfavourable variance is found, the reason for such variation is located and rectified accordingly.

Conclusion:

Thus now we can conclude, as to, What are the benefits & advantages of using cash flow statement? How this could help to depict cash flow performance and management of cash flow as well. 

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