What is cashflow?

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I read a lot about the definition but I can’t really get the hang of it.
Is it the cash that the company is left with at the end of the period? (Meaning the cash in their bank accounts *hypothetically*)

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17 Answers

Anonymous 0 Comments

Cash flow is, as other commenters have mentioned, all about the flow of cash in and out of a company, and whether it is coming from certain activities. The big ones here are operating (sales revenue, cost of goods sold, etc), investing, and financing. Investing and financing are important for cash flow, because if a company wants to fortify itself by holding onto more cash or making a large investment, investors want to be able to see how much of that cash was coming from financing activities (like a debt issuance) or operating cash flows (which could be profits from an investor’s perspective), and whether a company is using that cash to fund operations or investments.

A broader topic that may be of use to you is how cash flow statements relate to the other two big financial statements companies issue: the income statement and the balance sheet.

The balance sheet is a snapshot of the company at the end of a quarter. It does tell you how the company looks in terms of assets (cash, owned property, etc) and liabilities (money the company owes, of various forms), but it tells you nothing by itself about any changes in those items over the period in question.

The income statement tells an investor a lot of the big things people care about. Revenue, expenses, profitability, and these are things that aren’t necessarily point-in-time, but are activities the company performed over the quarter. Similarly, cash flow statements tell you about activities over time, and can be assembled from balance sheets and income statements to tell an investor specifically what money is going where.

To round out your original question, if you wanted to know how much cash a company has on hand at a given time, you’d actually want to check out the balance sheet.

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