What is the primary purpose of performing a cash flow analysis?

The primary purpose of performing a cash flow analysis is to evaluate a client's financial health. This analysis provides a detailed overview of all cash inflows and outflows within a specific period, enabling financial planners to assess how well a client manages their money and resources. By examining cash flows, planners can identify trends, pinpoint potential issues or concerns, and understand whether a client is generating enough income to cover their expenses and achieve their financial goals.

Evaluating cash flow is essential for developing budgets, planning future investments, and determining the ability to service debt, which are vital for maintaining overall financial well-being. This assessment serves as a foundation for making informed financial decisions and setting strategic goals.

Other options, while relevant in their own contexts, do not directly capture the primary objective of cash flow analysis. Measuring investment risk and calculating tax liabilities are specific aspects of larger financial planning and reporting processes, whereas minimizing expenses may be a tactic derived from cash flow insights but is not the main objective of the analysis itself.