Analyzing cash flow involves examining different components of cash inflows and outflows. The following steps are essential:
Cash Flow Statement: Prepare a cash flow statement that categorizes cash flows into operating, investing, and financing activities. Trend Analysis: Conduct a trend analysis to identify patterns and irregularities in cash flows over time. Ratio Analysis: Use financial ratios like the current ratio, quick ratio, and cash conversion cycle to assess liquidity and efficiency. Forecasting: Develop cash flow forecasts to predict future cash inflows and outflows and plan accordingly.