The purpose of cash flow statements is to monitor a business in terms of income and expenditures which is the primary requirement for a healthy business.Other than that cash flows are maintained to determine the expected output with the current output during a project in the business so that steps can be taken during the project to increase the project outcome.
Cash flow statements are used for various purposes and some of them are as follows: Firstly, it is used to provide information about the solvency and liquidity of the firm. Secondly, it gives the idea about the changes in the cash flow in future. Thirdly, cash flow statements provide information about the evaluation changes in the assets, equity and liabilities. Fourthly, it can be used to compare the operating performance of various firms in different fiscal years. Moreover, it indicates the amount, timings and the probability of the cash flows which the form expects to collect.
Purpose of cash flow is to monitor the inflow and out flow of the cash from or to the business, bifurcate the categories like for operating , investing and financing to see the changes in cash position of the business, it is important indicator and also show the health business activities, whether business is doing good or bad.