DEFINITION of Outbound Cash Flow
Outbound cash flow is any money a company or individual must pay out when conducting a transaction with another party. Outbound cash flows can include cash paid to suppliers, wages given to employees and taxes paid on income.
BREAKING DOWN Outbound Cash Flow
An outbound cash flow occurs whenever you are required to pay money. The opposite of an outbound cash flow is an inbound one. For example, when a company issues bonds to raise funds, they receive an initial inbound cash flow. However, when they are required to service this debt by paying coupons on the bonds, the company will experience an outbound cash flow. Outbound cash flows, like inbound ones, as described above can be characterized informally — money out and money in — but they can also be captured on a cash flow statement in accordance with standard accounting procedure.
Outbound Cash Flows on a Statement of Cash Flows
Cash flow statements are segmented into cash flows from operations, cash flows from investing and cash flows from financing. The indirect method of accounting records typical outbound cash flows in the form of increases in inventory and accounts receivable and decreases in accounts payable. Capital expenditures, acquisitions and purchases of securities are major outbound items in the cash flows from investing section. Finally, dividends, repurchases of common stock, and repayments of debt represent the bulk of outbound items in the cash flows from financing portion of the statement.
An analyst will compare outbound cash flows with inbound ones over a period of time as part of the evaluation of a company's financial condition. Obviously, inbound cash flows that are consistently in excess of outbound cash flows are desirable. There will be times when a significant outbound flow occurs — construction of a new production plant, for example, or for a corporate acquisition — but as long as the funds are applied wisely, the future inflows from such investments should earn acceptable returns for the company.