So long as you use accrual accounting, cash flow statements are an essential part of financial analysis for three reasons:
They show your liquidity. That means you know exactly how much operating cash flow you have in case you need to use it. So you know what you can afford, and what you can’t.
They show you changes in assets, liabilities, and equity in the forms of cash outflows, cash inflows, and cash being held. Those three categories are the core of your business accounting. Together, they form the accounting equation that lets you measure your performance.
They let you predict future cash flows. You can use cash flow statements to create cash flow projections, so you can plan for how much liquidity your business will have in the future. That’s important for making long-term business plans.
