Introduction to Cash Flow Analysis

Why Cash Flow Analysis Matters

Cash flow analysis evaluates how cash enters and leaves a business during an accounting period. Unlike the income statement, which is based on accrual accounting, the statement of cash flows focuses solely on actual cash receipts and payments. It helps users assess liquidity, financial flexibility, and the company's ability to sustain operations.

For CPA BAR candidates, cash flow analysis is essential because a profitable company can still experience financial distress if it lacks sufficient cash to meet its obligations.

• Evaluate liquidity and solvency.
• Assess operating cash generation.
• Understand financing and investing decisions.
• Identify cash flow trends.
• Support business valuation and credit analysis.