The Statement:
· Provides a tool to evaluate liquidity, solvency and financial stability of an entity.
· Presents detailed summary of cash inflows and outflows, the data which is not directly provided by the income statement or income statement.
· Serves as an indicator of amount, timing and extent.
· Facilitates the comparability as the reporting is standardized
· Emphasizes the qualitative aspect of the profit i.e what portion of profit represents cash flows.
· Eliminates management bi as in estimating accruals, market values, and seletion from among accounting policies.
· Measures the ability to pay cash dividend to owners, salaries to employees and payments to suppliers.
· Recognizes profit when it is realized and not when it is accrued.
· Evaluate the ability to of the entity to generate its cash requirements from normal trading operations.
· Reports the data required for computation of internal rate of return.
· Enables to decide the users of financial statement to asses whether the expansion is financed by external funds or through cash generated from operations.
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