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.

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