Cash flow
From Freepedia
In finance, cash flow refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project.
In accounting, a cash flow projection sets out all the expected payments and receipts in a given period. Managers use cash-flow projections to arrange for employees and creditors to be paid at appropriate times.
Example
| Transaction | In | Out |
|---|---|---|
| Incoming Loan | +$50.00 | |
| Sales (which were paid for in cash) | +$30.00 | |
| Materials | -$10.00 | |
| Labor | -$10.00 | |
| Purchased Capital | -$10.00 | |
| Loan Repayment | -$5.00 | |
| taxes | -$5.00 |
| Total.......................................... | ......+$40.00...... |
|---|
The cash flow for this example is +$40.00.
Note that we only include sales income which was paid for in cash. This is very important for describing the health of the business because although you may have made $1000 in sales, you still may have to wait to collect that cash (due to the terms you have with the customer). Even though you may be showing high profits on the Income statement, you may have no cash to show for it. This is why when determining the health of a business you must look at the Income statement, Balance Sheet, and the Cash Flow statement.
See also
- Cash flow statement
- Cash is king
- Discounted cash flow
- Internal rate of return
- Net present value
- Income statement
- Balance sheet
