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Limitations of Cash Flow Analysis

LIMITATIONS OF CASH FLOW ANALYSIS

Cash flow statement is a systematic tool of financial analysis. However, it suffers from some limitations which are as follows:

  1. A cash flow statement cannot be equated with the income statement. An income statement considers both cash and non-cash items. So cash does not mean net income of business.
  2. The cash flow statement may not represent the real liquid position of the concern. Due to this aspect, postponing of purchases and payments could be developed.
  3. Cash flow statement cannot replace the income statement or fund flow statement. Each and every statement has a separate function to perform.
  4. Due to inflation, economic depression and other external factors, projected cash flow statement may not achieve its results.