One of the main reasons why companies go into liquidation is that they run out of cash. It is possible for profits to be on a rising trend and yet to see the company going under. The prospect of liquidation is one of the reasons why you need to examine the cash inflows and outflows of the business over the year.
As well as assessing the likelihood of corporate failure, examining cash flow statements is very useful for filling in some of the gaps in the picture of the company’s performance and strength.
It helps answer some key questions such as: