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Cash Flow

Cash flow refers to the movement of money into and out of a business over a specific period. Positive cash flow indicates that a company has more money coming in from its operations, investments, or financing activities than going out, which is essential for covering expenses, paying debts, and investing in growth. Cash flow is a key indicator of a company’s financial health and liquidity. It is typically categorized into three types: operating cash flow, investing cash flow, and financing cash flow.

Example

A company generates $100,000 in operating cash flow, invests $30,000 in new equipment (investing cash flow), and repays $20,000 in debt (financing cash flow), resulting in a positive net cash flow of $50,000.

Key points

• Cash flow is the movement of money into and out of a business.

• Positive cash flow is essential for paying expenses, servicing debt, and investing in growth.

• It is divided into operating, investing, and financing cash flow.

Quick Answers to Curious Questions

Positive cash flow means a company has more money coming in than going out, while negative cash flow means it is spending more than it earns.

Cash flow ensures a business has enough liquidity to cover its operating expenses, pay debts, and invest in future growth.

The three types are operating cash flow, investing cash flow, and financing cash flow, each reflecting different aspects of a company’s financial activities.