Cash flow definition


The quantity of cash or cash equivalents that enter and leave a firm during a predetermined time period is referred to as cash flow. It is a crucial indicator of a business's financial health and is used to judge how well it can handle its financial responsibilities.

hard cash on a briefcase Cash flow definition
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Cash flow definition with an example

If a corporation has positive cash flow, it means that the amount of cash coming into the corporation from its operations, investments, and financing activities is greater than the amount of cash going out of the corporation for the same period. This positive cash flow can indicate that the corporation has enough cash to meet its financial obligations, such as paying bills, meeting payroll, and investing in growth opportunities.

A corporation has positive cash flow when its inflow of funds exceeds its outflow, and negative cash flow when the reverse is true. A company's ability to pay its bills and invest in growth prospects is indicated by a positive cash flow, whereas a negative cash flow suggests that it may find it difficult to satisfy its financial responsibilities.

Operating cash flow, investment cash flow, and financing cash flow are the three primary subcategories of cash flow. Operational cash flow is the money created or utilised in a business' daily operations, whereas investing cash flow is the money used for capital investments like buying machinery or buying long-term assets. The cash utilised for financing operations, such as the issuance of shares or the repayment of debt, is referred to as financing cash flow.