Cash ow

Up to overdraft limit no headroom / returned payments

For other uses, see Cash ow (disambiguation).

Cash Flow is the movement of money into or out of a
business, project, or nancial product. It is usually measured during a specied, limited period of time. Measurement of cash ow can be used for calculating other
parameters that give information on a companys value
and situation.

Stretch to pay salaries each month

Trade creditor arrears
Taxation arrears
Rent arrears

to determine a projects rate of return or value. The

time of cash ows into and out of projects are used
as inputs in nancial models such as internal rate of
return and net present value.

No working capital buer surviving day to day

Negative working capital on balance sheet over
geared / losses?

to determine problems with a businesss liquidity.

Being protable does not necessarily mean being
liquid. A company can fail because of a shortage
of cash even while protable.

Lack of funds for remedial action (redundancies /

premises relocation)

as an alternative measure of a businesss prots

when it is believed that accrual accounting concepts
do not represent economic realities. For instance, a
company may be notionally protable but generating little operational cash (as may be the case for a
company that barters its products rather than selling
for cash). In such a case, the company may be deriving additional operating cash by issuing shares or
raising additional debt nance.

Lack of protability insucient to support owner

/ managers lifestyle
Unable to pay for professional advice

1 Business nancials

The (total) net cash ow of a company over a period (typically a quarter, half year, or a full year) is equal to the
change in cash balance over this period: positive if the
cash balance increases (more cash becomes available),
negative if the cash balance decreases. The total net cash
to evaluate the risks within a nancial product, e.g., ow is the sum of cash ows that are classied in three
matching cash requirements, evaluating default risk, areas:
re-investment requirements, etc.
cash ow can be used to evaluate the 'quality' of income generated by accrual accounting. When net
income is composed of large non-cash items it is
considered low quality.

1. Operational cash ows: Cash received or expended

as a result of the companys internal business activities. It includes cash earnings plus changes to
working capital. Over the medium term this must
be net positive if the company is to remain solvent.

Cash ow notion is based loosely on cash ow statement

accounting standards. the term is exible and can refer to
time intervals spanning over past-future. It can refer to
the total of all ows involved or a subset of those ows.
Subset terms include net cash ow, operating cash ow
and free cash ow.

2. Investment cash ows: Cash received from the sale

of long-life assets, or spent on capital expenditure
(investments, acquisitions and long-life assets).

Symptoms of cash ow problems.[1] There are many

reasons a business can suer cash ow problems some
are down to mismanagement and poor decisions, and in
some cases factors outside of your control. Any of the
following symptoms can indicate that a business is experiencing cash ow problems:

3. Financing cash ows: Cash received from the issue

of debt and equity, or paid out as dividends, share
repurchases or debt repayments.
1

Examples

The net cash ow only provides a limited amount of information. Compare, for example, the cash ows over three
years of two companies:
Company B has a higher yearly cash ow. However,
Company A is actually earning more cash by its core activities and has already spent 45M in long term investments, of which the revenues will only show up after three
years.

See also
Cash ow sign convention
Cash ow hedge
Cash ow projection
Cash ow statement
Internal rate of return
Net present value
Return of capital

References

[1] Faulds, Carl. Symptoms of cash ow problems. Retrieved 10 Feb 2015.

External links
International Federation of Accountants International Good Practice Guidance on Project Appraisal
Using Discounted Cash Flow
A Review of Academic Research on the Reporting
of Cash Flows from Operations

EXTERNAL LINKS

Text and image sources, contributors, and licenses

6.1

Text

Cash ow Source: http://en.wikipedia.org/wiki/Cash%20flow?oldid=661070127 Contributors: WojPob, Ed Poor, Edward, Patrick, Kku,

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