Question

Which cashflow format is likely to be more applied for analytical
purpose?

Answer 1

Cash flow statements provide details of the cash inflow and cash outflow details of the company. It shows how the company is utilising the cash and the source of cash it receives. The cash flow statement is prepared using two methods which are "Direct Method" and "Indirect Method".

In the direct method, the cash flow statement is prepared basis the cash receipts and cash payments made. In the Indirect method, the cash flow statement is prepared basis the income statement and changes on the balance sheet items and adjustments are done for non cash items included in the income statement.

Most of the companies follow an accrual based reporting of the numbers and the cash flow statement which are reported by them are usually basis the indirect reporting method as the data source is from the income statement and the changes in the balance sheet accounts. And hence for analytical and peer group comparative purpose it would be usually the indirect reporting format as the data is widely available in that format and its easy for analysis and comparison across periods and companies.