Question

Forecasting cash flows is important for forecasting liquidity to see if debt payments can be covered by cash flow.

True or false

Answer 1

Answer: True.

Forcasting cash flows is important for forecasting liquidity to make sure that the debt payments obligations can be covered by the concerned cash flows.

Cash flows are very important for the successfull running of the business. These cash flows make sure that the business have enough liquidity to face any extreme situation which is not confined to debt obligations only.

Following are the major cash flows:

Cash flows from operations: Here the major source of cash flows comes from the core business or operations of the company.

Cash flows from investment: Here the major source of cash flows comes from investment and disposal of capital investments.

Cash flows from financing activies: Financing activies include raising money from equity, debt etc.