Cash flow is the movement of money into and out of a business or individual's finances over a specific period. It represents the inflow and outflow of cash, capturing the actual cash transactions rather than accounting for accrued revenues or expenses.
Cash flow includes all sources of incoming cash, such as revenue from sales, loans, investments, or any other form of income. It also includes outgoing cash payments, such as expenses, operating costs, taxes, loan repayments, and any other cash outflows.
Operating cash flow refers to the cash generated or consumed by a company's core business operations. It reflects the cash generated from sales, minus the operating expenses required to maintain and run the business.
Investing cash flow represents the cash used for acquiring or selling long-term assets, such as property, equipment, or investments. It includes cash spent on purchasing assets and cash received from the sale of assets.
Financing cash flow relates to the cash activities associated with raising capital or repaying debts. It includes cash received from issuing stock or borrowing, as well as cash paid for dividends, loan repayments, or buying back shares.
A positive cash flow occurs when the cash inflows exceed the outflows, indicating a surplus of cash. Conversely, a negative cash flow occurs when cash outflows exceed the inflows, indicating a deficit or financial strain.
Cash flow is crucial for individuals and businesses to meet their financial obligations, cover operating expenses, and invest in growth opportunities. It provides a clear picture of a company's ability to generate cash and its overall financial health. Positive cash flow is generally desirable, as it provides financial stability and flexibility.