What is Cash Flow?

Cash flow is basically a financial term that involves all the cash of a particular company including those that are created or received and those that are spent as operations expense. And since it involves all the cash that a company is able to generate and spend, cash flow figures can be used as indicators of a company’s financial health. Cash flow figures may be applied for a specific company project only or for the whole company itself. And since it involves tracking of the company’s “cash movement”, whether coming in (income) or moving out (expenses), care must be taken in adding up all the factors involved, to get a more accurate picture of a company’s financial strength.

In stricter financial terms, cash flows may come in different forms. One example is the operational cash flow which basically points to the most commonly known definition of cash flow and that is relating to a company’s cash, both generated and expended, with regards to its internal operations and activities. There is also another term called investment cash flow which refers to all cash made by a particular company for selling certain assets. Investment cash flows also include the cash used up for company spending in terms of investments and acquisitions. A third form of cash flow is called financing cash flows and as the term suggests these involve cash involved in paying out dividends and/or issuance of equity and debt.

The basic concept of cash flow is that companies aim to be on the positive side of things when calculating all the money that’s coming in and going out. This simply means that companies aim for cash receipts exceeding all expenses over a specific period of time. Whether it’s the entire company’s cash flow or just the cash flow involved for a small project, gaining a net profit from the cash flow is aimed for and is what makes a company financially sound.