Cash flow is the movement of money in and out of a company. It is the net cash and cash equivalents transferred in and out of a company. Cash received represents inflows, while money spent represents outflows .
The cash flow statement is a financial statement that reports a company’s sources and use of cash over time. It is an important financial statement issued by a company, along with the balance sheet and income statement .
A company’s cash flow can be categorized as cash flows from operations, investing, and financing .
– Cash flows from operations are the cash inflows and outflows generated by a company’s core business activities, such as sales, production, and delivery of goods or services .
– Cash flows from investing are the cash inflows and outflows related to investments in long-term assets such as property, plant, and equipment (PP&E) or securities .
– Cash flows from financing are the cash inflows and outflows related to financing activities such as issuing or repurchasing stocks or bonds, paying dividends, or taking out loans .
Understanding cash flows is essential for evaluating a companys liquidity, flexibility, and overall financial performance. Positive cash flow indicates that a company’s liquid assets are increasing, enabling it to cover obligations, reinvest in its business, return money to shareholders, pay expenses, and provide a buffer against future financial challenges ..