Definition

Cash flow is the movement of net amount of cash and equivalents in the business. Positive cash flow indicates the liquid assets of a company are increasing, making feasibility to pay its debt, reinvest in the business, pay expenses and return money to shareholders. Negative cash flow indicates that liquid assets of a company are not increasing. Cash flow is used to make an assessment of the quality of company’s income, its liquidity, and solvency.

Explanation of Cash Flow

Simply, it is the incoming and outgoing movement of cash, represents the operating activities of the business. Cash flow is the difference amount of cash available in the beginning and the ending of a period. The sources of cash inflow are loans, sales, revenue, and investment. The sources of cash outflow are payments of salaries and suppliers, interest on loan, payments of dividends etc. Maintaining the positive cash flow is necessary for any business for its survival because it is the fuel that drives the business accordingly. Most of the business analyst considers the cash flow as the most important financial statistic of the business.