Cash Flow

AAA

DEFINITION of 'Cash Flow'

1. A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities - financing, operations or investing - although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance.

2. An accounting statement called the "statement of cash flows", which shows the amount of cash generated and used by a company in a given period. It is calculated by adding noncash charges (such as depreciation) to net income after taxes. Cash flow can be attributed to a specific project, or to a business as a whole. Cash flow can be used as an indication of a company's financial strength.

{C}

INVESTOPEDIA EXPLAINS 'Cash Flow'

1. In business as in personal finance, cash flows are essential to solvency. They can be presented as a record of something that has happened in the past, such as the sale of a particular product, or forecasted into the future, representing what a business or a person expects to take in and to spend. Cash flow is crucial to an entity's survival. Having ample cash on hand will ensure that creditors, employees and others can be paid on time. If a business or person does not have enough cash to support its operations, it is said to be insolvent, and a likely candidate for bankruptcy should the insolvency continue.

2. The statement of a business's cash flows is often used by analysts to gauge financial performance. Companies with ample cash on hand are able to invest the cash back into the business in order to generate more cash and profit.

Learn to analyze a corporation's cash flows by reading Analyze Cash Flow The Easy Way and The Essentials of Corporate Cash Flow

VIDEO

RELATED TERMS
  1. Operating Cash Flow Margin

    A measure of the money a company generates from its core operations ...
  2. Operating Revenue

    Income derived from sources related to a company's everyday business ...
  3. Cash Return On Capital Invested ...

    A method of valuation that compares a company's cash return to ...
  4. Cash Flow Return on Investment ...

    A valuation model that assumes the stock market sets prices based ...
  5. Cash Flow Per Share

    A measure of a firm's financial strength, calculated as: Cash ...
  6. Capital Budgeting

    The process in which a business determines whether projects such ...
RELATED FAQS
  1. What is the formula for calculating net present value (NPV) in Excel?

    Understand how net present value is used to estimate the anticipated profitability of projects or investments and how to ...
  2. What is the difference between cash flow and revenue?

    Understand the difference between cash flow and revenue as they relate to corporate accounting and the financial evaluation ...
  3. What is the difference between cash flow and free cash flow?

    Learn about the main differences between cash flow and free cash flow. In addition to the differences, learn how to calculate ...
  4. How do I calculate cost of goods sold (COGS) using the first in, first out (FIFO) ...

    Learn how to use the first in, first out, or FIFO, method of cost flow assumption to calculate the cost of goods sold, or ...
Related Articles
  1. Fundamental Analysis

    Valuing Firms Using Present Value Of Free Cash Flows

    When trying to evaluate a company, it always comes down to determining the value of the free cash flows and discounting them to today.
  2. Fundamental Analysis

    Analyze Cash Flow The Easy Way

    Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors.
  3. Fundamental Analysis

    Analyzing Operating Margins

    Find out how to put this important component of equity analysis to work for you.
  4. Personal Finance

    An Introduction To Capital Budgeting

    We look at three widely used valuation methods and figure out how companies justify spending.
  5. Retirement

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  6. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  7. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  8. Markets

    Free Cash Flow: Free, But Not Always Easy

    Free cash flow is a great gauge of corporate health, but it's not immune to accounting trickery.
  9. Markets

    Cash Flow On Steroids: Why Companies Cheat

    Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it.
  10. Investing

    Will Intuitive Surgical Shares Benefit Investors?

    Earlier this month, Intuitive Surgical authorized to repurchase up to $1 billion of its common stock. But will it actually benefit investors?

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center