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Though the Cash Flow Statement is a very useful tool of financial analysis, it has its limitations which must

be kept in mind at the time of its use. These limitations are : (i) Non-cash Transaction is ignored: The Cash Flow Statement shows only inflows and outflows of cash. It does not show non-cash transactions like the purchase of buildings by the issue of shares or debentures to the vendors or issue of bonus shares. (ii) Not a substitute for an Income Statement: An income statement shows both cash and non-cash items. The income statement shows the net income of the firm whereas the Cash Flow Statement shows only the net cash inflows or outflows which do not represent the net profits or losses of the enterprise. (iii) Historical in Nature : It rearranges the existing information available in the income statement and the balance sheet. It will become more useful if it is accompanied by the projected Cash Flow Statement. (iv) Ignorance: It ignores basic accounting concept, i.e., accrual concept.

Advantages 1. It shows the actual cash position available with the company between the two balance sheet dates which funds flow and profit and loss account are unable to show and therefore it is important to make a cash flow report if you want to know about the liquidity position of the company. 2. It helps the company in making accurate projections regarding the future liquidity position of the company and hence arrange for any shortfall in money by making arrangements in advance and if there is excess than it can help the company in earning extra return out if idle funds. 3. It acts like a filter and is used by many analyst and investors to judge whether company has prepared the financial statements properly or not because if there is any discrepancy

in the cash position as shown by balance sheet with cash flow statement than it means that statements are incorrect. Disadvantages 1. Since it shows only cash position, it is not possible to arrive at actual profit and loss of the company by just looking at this statement alone. 2. In isolation this is of no use and it requires other financial statements like balance sheet, profit and loss etc, and therefore limiting its use

As the companies cash flows are fluctuating frequently the company needs to analyze the reason for fluctuation n decrease the fluctuations From the given balance sheet and cash flow statement of the respected company as been analysied and it guves us a brief knowledge about the operating, investing and finance activites of the company ..the operating activites shows us the returns from the operations and its a actual ouput which the company gets .investing activites just shows the iinvestment profile of the company.finance shows the inflow and outflow of cash

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