Limitations of Cash Flow Analysis

Although cash flow statement is seen as a standardised tool for financial analysis, there are some limitations associated with it. Some of them are as follows:

1. A cash flow statement and an income statement cannot be related as one. Both cash and non-cash items are considered to be an income statement, but it does not mean that cash is the net earnings of the business.
2. The real liquid position of a firm may not be depicted by the cash flow statement. Due to this issue related to purchases and payments, delays can develop.
3. Different statement has different performing function. So,be it a fund flow statement or income statement, it cannot be replaced by cash flow statement.
4. A predicted cash flow statement may not be able to attain its result during the times of economic depression and inflation.It canal so fail to show the results due of various external factors.

Links of Previous Main Topic:-

• Introduction cash flow statement
• Introduction to accounting and branches of accounting
• Preparation of final accounts

Links of Next Finance Topics:-

• Difference between cash flow analysis and flow fund analysis
• Steps preparation cash flow statement
• Problems and solutions cash flow statement
• Minimization problems
• Learning objectives the transportation problems
• Special case of traveling sales man problem
• Replacement theory learning objectives and chapter outline
• Learning objectives and chapter outline for waiting line queuing theory

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