What does cash flow analysis involve?

Cash flow analysis involves evaluating the inflows and outflows of cash in a business, which is a crucial aspect of financial management. This analysis provides insights into a company's liquidity, solvency, and overall financial health. By examining how cash moves in and out of the business, management can identify trends over time, forecast future cash flows, and plan for the financial needs of the organization.

An accurate assessment of cash flow allows businesses to ensure that they can cover their expenses, invest in new opportunities, and manage unexpected financial challenges. It also serves as a key indicator of operational efficiency and helps in making informed decisions regarding investments or cost-cutting measures.

In contrast, assessing employees' performance, assisting in strategic planning, or measuring customer satisfaction focuses on different aspects of business management and does not directly pertain to the analysis of cash flow. Understanding cash flow is fundamental to maintaining a healthy business operation, hence the importance of this analysis.