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Cash flow analysis determines a company's working capital by calculating current assets minus current liabilities. It analyzes cash inflows and outflows to understand a company's financial health and make informed decisions. Regular cash flow analysis helps businesses budget accurately, identify growth opportunities, and maintain financial stability.

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12 views7 pages

Ravi Mishra Ca2

Cash flow analysis determines a company's working capital by calculating current assets minus current liabilities. It analyzes cash inflows and outflows to understand a company's financial health and make informed decisions. Regular cash flow analysis helps businesses budget accurately, identify growth opportunities, and maintain financial stability.

Uploaded by

Ravi Mishra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Cash Flow Analysis

A company's cash flow is the lifeblood of the business. A cash flow


analysis determines a company's working capital — the amount of money available to
run business operations and complete transactions. That is calculated as current assets
(cash or near-cash assets, like notes receivable) minus current liabilities (liabilities due
during the upcoming accounting period). In this presentation, we will explore the
various methods of cash flow analysis to help businesses better understand and
manage their financial health.

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What is Cash Flow Analysis?

Cash Flow Defined Types of Cash Flow Purpose of Cash Flow


Analysis
Cash flow analysis is the process of There are three types of cash flow:
analyzing the inflow and outflow of operating, investing, and financing. The purpose of cash flow analysis is
cash within an organization. It Operating cash flow is the cash to help businesses understand their
provides a clear understanding of generated from a company's core current financial situation, anticipate
how much cash is coming in and business activities. Investing cash future financial needs, and make
going out of a business, allowing flow is the cash used to purchase informed decisions about
businesses to make informed long-term assets or investments. investments, expansions, and
decisions regarding their financial Financing cash flow is the money operations. It's a crucial tool for
health. used to fund the business, such as maintaining the financial health of a
loans and investments from business.
shareholders.
Why is Cash Flow Analysis Important for
Businesses?
Prevents Cash Shortages Improves Budgeting

Cash flow analysis helps businesses to identify By having a clear understanding of their cash
potential cash shortfalls before they happen, inflows and outflows, businesses can create more
allowing them to be proactive in addressing any accurate and effective budgets and financial plans.
issues.

Identifies Growth Opportunities Reduces Financial Risk

By monitoring their cash flow, businesses can Cash flow analysis helps businesses to avoid
identify opportunities for growth, such as expanding financial risk, such as taking on too much debt or
into new markets or investing in new products. investing in unprofitable projects.
Different Methods of Cash Flow Analysis
1 Direct Method

The direct method involves analyzing the


cash inflows and outflows of a business over
Indirect Method 2 a period of time, generally on a monthly or
The indirect method involves analyzing a quarterly basis.
business's income statement and balance
sheet to calculate their cash flow.
3 Discounted Cash Flow Analysis

This method is used to determine the present


value of future cash flows, taking into
account the time value of money.
Interpreting Cash Flow Analysis Results

Positive Cash Flow Negative Cash Flow Cash Flow Statement

Positive cash flow means a business Negative cash flow means a The cash flow statement provides an
is generating more cash than it's business is spending more cash than overview of a business's cash
spending. This is a good sign for the it's generating. This is a warning inflows and outflows, and can be
financial health of the business. sign for the financial health of the used to determine the reasons
business and may require immediate behind any positive or negative cash
action. flow trends.
Benefits of Regular Cash Flow Analysis

1 Proactive Decision-Making

By regularly analyzing their cash flow, businesses can make informed decisions about
investments, expansions, and operations before problems arise.

2 Improved Budgeting and Planning

Regular cash flow analysis allows businesses to create more accurate budgets and financial plans,
improving their overall financial performance.

3 Increased Financial Stability

By regularly monitoring their financial health, businesses can reduce their risk of financial
instability and make sound financial decisions.
Conclusion

Cash Flow Analysis: A Key to Financial Success

Cash flow analysis is a crucial tool for businesses of all sizes. Regular analysis helps businesses maintain financial health,
avoid financial risks, and make informed decisions about investments, expansions, and operations.

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