Contributing Member of the Accounting & Financial Analysis Councils

Names and details of certain GLG News authors are available only to GLG Clients and Council Members. GLG News authors are subject-matter experts within the GLG Councils and are available for expert consulting - by phone, in-person, or written analysis. To find out how to become a GLG client or Council Member, click here.

All News Analyses by this Author

Analyses are solely the work of the authors and have not been edited or endorsed by GLG.

Is Liquidity Accounting the Future?

May 5, 2009

Analysis of:CFO's on IFRS: Forget About It | www.cfo.com

Current accounting standards are confusing and hard to understand by the average reader of financial statements. They don't present a picture of liquidity or an analysis of of cash needs and uses. Good businesses fail principally because they run out of cash, yet the traditional statement of cash flow doesn't accurately or clearly describe sources of cash and where it went. Nor does it indicate projected cash requirements and whether the company will be able to meet its cash needs. There must be a linkage between realistic sales and earnings forecasts and the bottom line result. Two analyses, therefore, are vital for an understanding of where a company is heading and whether it is reasonable to assume that it will get there. The first is cash basis forecasting, and the second is liquidity analysis. A monthly cash flow analysis for 12 months out is critical to determine the adequacy of internally generated cash flow versus the need to draw-down on existing debt availability.

Contributing Member of the Accounting & Financial Analysis Councils

All News Analyses by this Author

This author consults with leading institutions through GLG

Most Popular Accounting & Financial Analysis News