A:

In financial accounting, "cash flow" refers to the statement of cash flows, a required report under generally accepted accounting principles (GAAP). This statement shows the inflow and outflow of actual cash (or cash-like assets) from operating, investing or financing activities. "Fund flow" has two different meanings, one for accounting purposes and one for investing purposes. Accounting-wise, it could be used in reference to the fund's flow statement, which GAAP required from 1971 until 1987. Investing-wise, it refers to Investors and market analysts tracking the flow of funds in and out of various sectors of an economy or asset classes – the net fund flows for bonds during a certain month, for example.

Cash Flow

Companies receive inflows of cash revenue from selling goods, providing services, selling assets, earning interest on investments, rent, taking out loans or issuing new shares. Cash outflows can result from making purchases, paying back loans, expanding operations, paying salaries or distributing dividends.

Since the Securities and Exchange Commission (SEC) requires all listed companies to use accrual accounting – which largely ignores the actual balance of cash on hand – investors and lenders rely on the statement of cash flow to evaluate a company's liquidity and cash flow management. It is a more reliable tool than the metrics companies use to dress up their earnings, such as earnings before interest, taxes, depreciation and amortization (EBITDA).

Fund Flow

When it was required, the statement of fund flow was primarily used by accountants to report any change in a company's net working capital during a set period of time. Much of this information is now captured in the statement of cash flow.

The investing use of fund flow is more useful today. Here, overall investor sentiment can be gauged as it relates to different asset classes. If the flow of funds for equities is positive, for example, it suggests that investors have a generally optimistic view of the economy (or at least the short-term profitability of listed companies).

RELATED FAQS
  1. Are taxes calculated in operating cash flow?

    Learn how taxes are involved with the calculations for a firm's operating cash flow, and the overall significance of operational ... Read Answer >>
  2. How are cash flow and free cash flow different?

    Cash flow and free cash flow are both important financial metrics used to determine the liquidity of a company and how it's ... Read Answer >>
  3. How should I evaluate a company with negative cash flow investing activities?

    Negative cash flow from investing activities should be evaluated since it could be a warning sign. However, it can also mean ... Read Answer >>
  4. What is the difference between operating cash flow and net income?

    Learn how net income is an income statement for a certain period of time, while cash flow shows inflows and outflows based ... Read Answer >>
  5. What's more important, cash flow or profits?

    Learn about the different effects of cash flow and profit have on a business and how you can use the information for your ... Read Answer >>
  6. What changes in working capital impact cash flow?

    Working capital is the amount of money a company has available to pay its short-term expenses. Cash flow is the amount of ... Read Answer >>
Related Articles
  1. Investing

    Analyze cash flow the easy way

    Learn the key components of the cash flow statement, how to analyze and interpret changes in cash, and what improved free cash flow means to shareholders.
  2. Investing

    What Is Cash Flow From Investing Activities?

    Cash flow from investing is listed on a company's cash flow statement and includes any inflows or outflows of cash from a company's long-term investments. 
  3. Investing

    Cash Flow From Operating Activities

    Cash flow from operating activities is a section of the Statement of Cash Flows that is included in a company’s financial statements after the balance sheet and income statements.
  4. Investing

    Cash flow statements: Reviewing cash flow from operations

    Discover why cash flow from operating activities is significant to businesses, and learn the direct and indirect methods for calculating it.
  5. Investing

    Cash flow statement: Analyzing cash flow from financing activities

    The financing activity in the cash flow statement measures the flow of cash between a firm and its owners and creditors.
  6. Retirement

    Picking Retirement Stocks: Dividends vs. Free Cash Flow

    Instead of focusing on dividend payments, a better metric for choosing stocks for your retirement portfolio could be a company’s free cash flow (FCF).
  7. Investing

    How to Improve Your Cash Flow in Manufacturing

    Here are 10 ways to to improve a manufacturer's cash flow.
RELATED TERMS
  1. Cash Flow Statement

    A cash flow statement is a financial statement that provides ...
  2. Fund Flow

    Fund flows are the net cash that went into or out of specified ...
  3. Non-Operating Cash Flows

    Non-operating cash flows are inflows and outflows of cash that ...
  4. Sales To Cash Flow Ratio

    The sales to cash flow ratio shows how efficiently a business ...
  5. Incremental Cash Flow

    Incremental cash flow is the gain received from a new project. ...
  6. Common Size Financial Statement

    A common size financial statement allows for easy analysis between ...
Trading Center