Final answer:
The correct statement regarding a financial planner's analysis of a client's cash flow statement is that it can help determine whether the client is living within their financial means. Option 1 is correct answer.
Step-by-step explanation:
The analysis of a client's cash flow statement by a financial planner can reveal much about the client's financial health. Regarding the correct statement, option 1 is accurate: The analysis of the client's cash flow statement can help the planner determine whether the client is living within his financial means. This is because a cash flow statement provides a detailed look at how much money is coming in and going out, highlighting whether the client is overspending relative to their income.
Option 2 is not entirely accurate as the net worth of a client is better determined through a balance sheet which tracks assets and liabilities, not through the cash flow statement which monitors inflows and outflows over a period of time. However, a cash flow statement can help in understanding the liquidity and financial flexibility of a client.
For option 3, while financial planners often encourage clients to manage their variable expenses, it is not a universal rule applicable to every client's cash flow statement. Instead, planners tailor their advice based on the specific financial situation and goals of the individual client.
Therefore, a cash flow analysis can indeed lead to recommendations about variable expenses, but this is not typically the sole or primary focus of the analysis.