Financial Glossary
Cash Flow
What is Cash Flow?
Cash flow refers to the movement of money into and out of a business, reflecting how funds are generated and spent. Positive cash flow indicates healthy financial status, while negative cash flow may signal financial challenges.
📈 Why is Cash Flow Important for Businesses?
- Ensures Liquidity: Having enough cash to cover expenses.
- Supports Growth: Positive cash flow enables investments in assets and expansion.
- Aids in Debt Management: Helps meet loan repayments on time.
🔍Types of Cash Flow
|
Type |
Description |
Example |
|
Operating Cash Flow |
Day-to-day business activities |
Sales revenue, utility payments |
|
Investing Cash Flow |
Money from buying/selling assets |
Purchase of equipment |
|
Financing Cash Flow |
Related to borrowing or returning funds to investors |
Loan repayments, dividends |
💡 How to Manage Cash Flow Effectively
-
- Create a Cash Flow Statement: Track cash inflows and outflows.
- Forecast Cash Flow: Anticipate future financial needs.
- Reduce Expenses: Identify and cut unnecessary costs.
- Improve Receivables: Encourage faster customer payments.
❓ People Also Ask:
What is the Difference Between Cash Flow and Profit?
- Cash Flow: The actual money moving in and out of a business.
- Profit: The total revenue minus expenses, which can include non-cash items like depreciation.
📌 Related: Accounts Receivable | Budgeting
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