A company’s profit for a stated period plus any deductions that are not paid out in actual cash, such as depreciation. For an investor, any source of income from an investment including dividends, interest, income, rental income, etc.
What is Cash Flow?
Cash flow refers to the inflows and outflows of cash in a business or individual’s financial activities. It is a measure of the net amount of cash being received and spent over a specific period of time, typically a month or a year.
Cash flow is an important metric for businesses and individuals, as it provides information about their ability to generate and manage cash. Positive cash flow indicates that a business or individual is generating more cash than it is spending, while negative cash flow indicates that the opposite is true.
There are several components to a cash flow statement, including operating cash flow, investing cash flow, and financing cash flow. Operating cash flow refers to the cash generated from a company’s core business operations, such as sales and expenses. Investing cash flow refers to the cash generated from investments, such as the purchase or sale of assets. Financing cash flow refers to the cash generated from financing activities, such as the issuance of debt or equity.
Cash flow is important because it affects a business or individual’s ability to pay bills, make investments, and achieve financial goals. Positive cash flow is essential for a business to grow and maintain its operations, while negative cash flow can lead to financial distress and the need to find additional sources of funding.
Businesses and individuals should regularly review their cash flow statements to understand their financial position, identify trends, and make informed decisions about their financial activities. Proper cash flow management is a critical component of effective financial planning and management.
