Cash flow is also known by the English expression cash flow.
Cash flow is the statement of how much cash someone has left after expenses, interest, and principal payments. The expression, which in the field of accounting is known as a cash flow statement , is an accounting parameter that offers information in relation to the movements that have been made in a certain period of money or any of its equivalents.
Operating activities, investments and financing are part of the categories contemplated in the framework of the cash flow statement (or cash flow , in English). Operational cash flow indicates the cash received or invested as a result of the company's basic activities. The investment cash flow does the same with respect to investment expenses (capital, acquisitions, etc.), while the financing cash flow considers the cash resulting from the receipt or payment of loans, the issuance or repurchase of shares and the payment of dividends.
Cash Flow Profit
By projecting these statements, the company can predict whether it will have the cash necessary to cover its expenses and make a profit. Analyzing the cash flow statement, therefore, is a very important activity for small and medium-sized companies that often suffer from a lack of liquidity to meet their immediate needs. Cash flow allows you to make forecasts and helps avoid emergency solutions (such as going to financiers to request short-term, high-cost loans).
It should be noted that the preparation of the cash flow makes it possible to manage finances , contributes to decision making and facilitates the control of expenses to improve profitability .
Cash flow is a statement of how much cash you have left after expenses, interest, and principal payments.
income statement
When analyzing the financial situation of a company , it is normal to pay special attention to operational and profitable issues, relying on the data obtained from the income statement (whose main objective is to report whether a company produces profits or losses. ). It is very common for this study to include comparisons with previous years, with pre-established objectives or with the status of other firms in the same sector.
This can dry up conclusions about a company's financial health that, while useful, do not offer the necessary amount of detail and depth. This analysis will not be complete until the evolution of the assets is studied, through the so-called Balance Sheet. Thus, by combining the results of both accounting documents , a broader and clearer perspective can be obtained of a company's ability to produce financial resources (cash flow) to meet payments.
Negative cash flow
It is common for financial analysis professionals to interpret a negative cash flow as a worrying sign about liquidity , a clear warning of an excessive level of debt. For this reason, in recent times there has been a tendency to invest in companies that show positive and growing results.
Unfortunately, it is very normal for this data to be manipulated in the case of large companies, both for the better and for the worse. Nowadays, the financial information of companies is public knowledge, thanks to the Internet, and many times unfair measures to undermine the competition begin through viral publications (which spread quickly through the Internet) and, if are endorsed by an analyst, they will have enough weight to generate doubts and instability. Slander fabricated from false or inaccurate data is often reason enough to affect the success of a company on the stock market , even for a short time.