Limitations Of Cash Flow Analysis

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  1. Cash flow statement cannot be equated with the Income Statement. An income statement takes into account both cash as well as non-cash items and, therefore, net cash flow does not necessarily mean net income of the business.
  2. The cash balance as disclosed by the cash flow statement may not represent the real liquid position of the business since it can be easily influenced by postponing purchases and other payments.
  3. Cash flow statement cannot replace the Income Statement or the Funds flow statement. Each of them has a separate function to perform.
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