Cash Flow

Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation. Cash flow can be used, for example, for calculating parameters:

  • to determine a project's rate of return or value. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return and net present value.
  • to determine problems with a business's liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash even while profitable.
  • as an alternative measure of a business's profits when it is believed that accrual accounting concepts do not represent economic realities. For example, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash). In such a case, the company may be deriving additional operating cash by issuing shares or raising additional debt finance.
  • cash flow can be used to evaluate the 'quality' of income generated by accrual accounting. When net income is composed of large non-cash items it is considered low quality.
  • to evaluate the risks within a financial product, e.g., matching cash requirements, evaluating default risk, re-investment requirements, etc.

Cash flow is a generic term used differently depending on the context. It may be defined by users for their own purposes. It can refer to actual past flows or projected future flows. It can refer to the total of all flows involved or a subset of those flows. Subset terms include net cash flow, operating cash flow and free cash flow.

Read more about Cash Flow:  Statement of Cash Flow in A Business's Financials, Ways Companies Can Augment Reported Cash Flow, Examples

Other articles related to "cash flow, cash, cash flows":

Stock Option Expensing
... On the income statement, balance sheet, and cash flow statement say that the loss from the exercise is accounted for by noting the difference between the market price (if one exists) of the shares and ... price and the market price of the shares- is already stated on the cash flow statement ... income statement but can be noted upon examination of the balance sheet and cash flow statement ...
CAMEL Rating System - Liquidity Risk
... risk of not being able to efficiently meet present and future cash flow needs without adversely affecting daily operations ... to meet its present and anticipated cash flow needs, such as, funding loan demand, share withdrawals, and the payment of liabilities and expenses ... availability of assets readily convertible into cash and technical competence relative to liquidity and cash flow management ...
T-Model - The Cash-flow T-model
... on estimates of return on equity, but rather is driven by cash items cash flow from the income statement, and asset and liability accounts from the balance sheet ... The cash-flow T-model is ...
Senior Stretch Loan
... debt instrument consisting of both asset-based loan and cash flow loan ... have substantial asset base but do not have stable or predictable cash flows ... Cash flow loans would be much smaller and more expensive for these companies ...
Cash Flow - Examples
... Description Amount ($) totals ($) Cash flow from operations +10 Sales (paid in cash) +30 Materials -10 Labor -10 Cash flow from financing +40 ... Compare, for example, the cash flows over three years of two companies Company A Company B Year 1 Year 2 year 3 Year 1 Year 2 year 3 Cash flow from operations +20M +21M +22M +10M +11M +12M Cash flow ... However, Company A is actually earning more cash by its core activities and has already spent 45M in long term investments, of which the revenues will only show up after three years ...

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