Cash Flow

What is Cash Flow?

Cash Flow refers to the physical as well as the virtual movement of monetary resources in and out of a company’s financial account in the form of cash and its equivalents inside a timeframe. It signifies the flow of cash inward (revenues) and outward (expenses) and recording it properly works wonders for companies while setting business goals.

Understanding Cash Flow

Cash flow is both the inflow and outflow of cash for a business or company during a certain period of time. So, it is the difference between cash receipts and cash expenditures. This flow is usually measured by a business loan customer’s net income plus non-cash expenses (depreciation).

The positive inflow of cash is referred to as Free Cash Flow (FCF) - it is the net total of the company’s cash income after subtracting the capital expenditures including dividend payments. The Statement of Cash Flow combines a company’s balance sheet and income statement in order to list the collections of revenues in detail.

Types of Cash Flow

There are two major types of flow when it comes to cash and they are as follow -

  • Cash Inflow: Inflow is the amount that comes into the company’s account or the resources added to its inventory.
  • Cash Outflow: Outflow is the amount that goes out of the company’s account by being spent on production or management.

There are three more classifications of cash flows depending on where they are coming from, and they are -

  1. From Operating Activities
  2. From Investment Endevors
  3. From Other Financial Opportunities

Practical Example

If Johnson & Johnson has earned $100 million in profit this year, that will be the cash inflow. The company’s capital expenses to buy the raw materials signify the cash outflow since the cash is flowing out of the company’s account in this case.

In Sentences

  • The positive and negative cash flows indicate the state of a company’s financial strength.


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