Cash flow statements track and manage a company's finances by recording cash usage. They determine the inflow and outflow of money. Inflows are from operating, investing, and financial activities, while outflows are expenditures for obligations and investments.
The primary goal of creating a cash flow statement might be stated as follows:
Financial planning in the short run: It informs you about the cash flow and day-to-day costs. It will also assist in determining if the corporation has enough cash to pay any future loans and interest and whether it has enough cash to cover the acquisition of fixed assets.
Creating the cash budget: A cash flow statement helps prepare and produce a cash budget for the future, ensuring financial security. It educates managers and business owners about financial surpluses and deficits.
Identifying the changes in cash receipts and payments: A cash flow statement shows the rate at which cash is generated from a company's current assets and the pace at which the current obligations are paid. It assists the management in determining the exact position of cash in the future and the company's financial standing.
Revealing the cash position: It is an important pointer about the movement of cash, i.e., whether there is an influx of cash or a decrease of cash, along with describing the reasons for the same.
Helping the internal management: It helps the company in deciding on the financial policies that can be adopted in the future as it provides crucial information related to monetary funds. Examples are determining the replacement of fixed assets, repayment of long-term liabilities, etc.
Assisting outsiders: A cash flow statement assists investors, debenture holders, bankers, lenders, and others in analyzing a company's financial status and making appropriate and informed decisions.