Cash flow refers to the movement of cash into and out of a company or individual’s accounts. It is a measure of the inflow and outflow of cash and is used to assess a company’s financial health and its ability to generate cash.
There are three main types of cash flow:
- Operating cash flow: Operating cash flow is the cash generated from a company’s daily business operations, such as the sale of goods or services. It is a measure of a company’s ability to generate cash from its core business activities.
- Investing cash flow: Investing cash flow is the cash generated from a company’s investment activities, such as the purchase or sale of fixed assets or investments in other companies.
- Financing cash flow: Financing cash flow is the cash generated from a company’s financing activities, such as the issuance of new debt or equity or the repayment of existing debt.
Cash flow is an important financial metric for businesses and investors, as it provides information about a company’s financial stability and its ability to meet its financial obligations. It is also a key factor in a company’s ability to fund operations, invest in growth, and pay dividends to shareholders.
A company with positive cash flow is generally considered to be financially healthy, as it has the ability to generate cash to meet its financial obligations and fund growth. A company with negative cash flow may have difficulty meeting its financial obligations and may be at risk of financial distress.