What Is Cash Flow?

Cash flow is tܫhe movement of money into and out of a company over a ce🧸rtain period of time. If the company’s inflows of cash exceed its outflows, its net cash flow is positive. If outflows exceed inflows, it is negative.

Public companies must report their cash flows on their 澳洲幸运5官方开奖结果体彩网:financial statements. This information can be of great interest to investors as an indicator of a company’s 澳洲幸运5官方开奖结果体彩网:financial health, especially when combined with other data.

Formula and Calculation of Cash Flow

You can easily calcul🃏ate a company’s net cash flow (NCF) using this formula:

NCF = TCI - TCO

Where:

• TCI = Total cash inflow
• TCO = Total cash outflow
  

Understanding Cash Flow

Cash flow refers to the money that goes in and out of a business. Businesses take in money from sales as revenues (inflow) and spend money on expenses (outflow). They may also receive income from interest, investments, 澳洲幸运5官方开奖结果体彩网:royalties, and licensing agreements and sell products on credit rather than for immediate cash. Assessing cash flows is essential for evaluating a company’s 澳洲幸运5官方开奖结果体彩网:liquidity, flexibility, and overall financial performa🍒nce.

Positive cash flow indicates that a 澳洲幸运5官方开奖结果体彩网:company’s liquid assets are increasing, enabling it to cover obligations, reinvest in its business, return money to shareholders, pay expenses, and provide a buffer against future financial challenges. Companies with strong financial flexibility fare better, especially when the economy experiences a downturn, by avoiding the costs of 澳洲幸运5官方开奖结果体彩网:financial distress.

Cash flows are reported on a 澳洲幸运5官方开奖结果体彩网:cash flow statement, which is a standard financial statement that shows a company’s cash sources and use over a specified period. Corporate management, analysts, and investors use this statement to judge how well a company is able to pay its debts and manage its operating expenses. The cash flow statement is one of several financial statements issued by public companies, which also include a 澳洲幸运5官方开奖结果体彩网:balance sheet and an 澳洲幸运5官方开奖结果体彩网:income statement.

Cash Flow Statement

The cash flow statement acts as a corporate checkbook to reconcile a company’s balance sheet and income statement. The cash flow statement includes the 澳洲幸运5官方开奖结果体彩网:bottom line, recorded as the net increase/decrease in 澳洲幸运5官方开奖结果体彩网:cash and cash equivalents (CCE).

The bottom line reports the overall change in the company’s cash and cash equivalents over the last period.

Types of Cash Flow

Cash Flow From Operations (CFO)

澳洲幸运5官方开奖结果体彩网:Cash flow from operations (CFO) describes money flows involved directly with the production and sale of goods from ordinary operations. Also known as 澳洲幸运5官方开奖结果体彩网:operating cash flow or OCF, as well as net cash from operating activities, CFO indicates whether or not a company has enough funds coming in to pay its bills or 澳洲幸运5官方开奖结果体彩网:operating expenses.

It is calculated by taking cash received from sales and subtracting oper𒉰ating expenses that were paid in cash for the period.

Cash Flow From Investing (CFI)

澳洲幸运5官方开奖结果体彩网:Cash flow from investing (CFI) or investing cash flow reports how much cash has been generated or spent from various investment-related activities in a specific period. Investing activities include purchases of speculative assets, investments in 澳洲幸运5官方开奖结果体彩网:securities, or sales of securities or assets.

Negative cash flow from investing activities might be due to significant amounts of cash being invested in the company, such as 澳洲幸运5官方开奖结果体彩网:research and development (R&D), and is not always a warning sign.

Cash Flow From Financing (CFF)

澳洲幸运5官方开奖结果体彩网:Cash flow from financing (CFF) shows the net flows of cash used to fund the company and its capital. CFF is also commonly referred to as financing cash flow. Financing activities include transactions involving the 🐽issuance of debt or equity, and paying dividends.

Cash flow from financing activities provides investors with insight into a company’s financial strength and how well its 澳洲幸运5官方开奖结果体彩网:capital structure is managed.

How to Analyze Cash Flows

Using the cash flow statement in conjunction with other financial statements c🍨an help ꦗanalysts and investors make informed decisions and recommendations. Often-used measures include:

Example of Cash Flow

Below is the cash flow statement for Walmart (WMT) for the 澳洲幸运5官方开奖结果体彩网:fiscal year ending on Jan. 31, 2025. All amounts are in millions of U.S. dollars.

Walmart’s investments in 澳洲幸运5官方开奖结果体彩网🦩:prope♏rty, plant, and equipment (PP&E) and acquisitions of other businesses are accounted for in the cash flows from investing activities section. Proceeds from issuing long-term debt, debt repayments, and dividends p🃏aid out are accounted for in the cash flows from financing activit𒅌ies section.

Walmart’s cash flow was negati🌼ve, showing a net decrease of $399 million, which indicates that it lost cash in the business and drained from its reserves to handle short-term liabilities and fluctuations in the future.

The Bottom Line

Cash flow refers to money that goes in and out of a business. Companies witಌh a positive cash flow have more money coming in than they are spending. However, cash flow alone can sometimes provide a deceptive picture of a company’s financial health, so it is often used in conjunction with other data.