POSSIBILITIES OF ANALYSIS AND INTERPRETATION OF CASH FLOW STATEMENT

Information from the cash-flow statement can be used to asses the quality of earnings, liquidity and financial flexibility and to help forecast cash-flow. Cash flow statement analysis completes financial analysis based on balance sheet and profit and loss account, providing additional information about the ability to conduct an efficient business, to finance growth and to meet obligations. Since the purpose of analysis the cash flows is to emphasize the combined effect of operating decisions, investment and finance, in parallel to analyze the balance sheet and the results may lead to conclusions much better grounded than the separate analysis of this statement. Various groups of users of financial statements use financial ratios as a tool for analysis and planning. Most computed financial ratios usually focus only on balance sheets and income statements. This is regrettable since the statement of cash flows can also offer useful insights from ratio analysis. Many ratios based on the cash flow statement are possible. Information about cash flows from investing and financing activity is important, but the center piece of a company and its principal reason for existence is its operating activity. Therefore cash flow from operating activities is the most significant element of the cash flow statement for the purpose of ratio analysis.