Know A Few Things About Cash Flow
The balance of the incoming cash and outgoing cash of a company for a particular period is
known as the Cash Flow of that company.
If the cash flow is positive then it shows that the liquidity level of the company is increasing or
becoming stronger but if it is negative then it indicates its weak or shrinking liquidity position.
Companies are more flexible with positive its as they can improve assets, meet obligations,
overcome challenges and return shareholder’s money.
Cash flow of a company does not show whether it is profitable or not as it is related only to its
cash and other similar operations.
It can be difficult to grow for a profitable company with weak cash flow.
Due to irregular settlement of even short term liabilities it can fail even if it is profitable.
Importance of cash flow
It can be difficult for a company to survive if its assets subject to accounts receivable,
real estate or inventories as they cannot be liquidated enough to pay monthly bills. On the contrary,
if the company can meet its short term liabilities by using cash or similar things by selling cash assets
or borrowing cash against its future growth then it can survive for long due to its strong its.
It can be non-profitable for the company but will not affect its cash flow.
For instance, the stability of a startup can be ensured for some time if it receives cash from investors with
an expectation of generating revenue from the products produced by them in future.
But that company cannot ensure stability for long time if it could not generate additional cash flow
without generating more revenue.
Statement of cash flow
The statement of its includes three main segments including operating activities,
financial activities and investing activities.
The inflow and outflow of cash for the fundamental requirements of the company like costs and
revenue from sales etc.
come under operating activities.
Cash used for reissuing stocks or paying back debts comes in financial activities.
The cash used for improving the operations of the company like liquidating or acquiring
manufacturing tools and equipment etc. come under investing activities.
Written By : YOUSSEF J A ALMEER
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