What Does Cash Flow Mean?
1. A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of threeactivities - financing, operations or investing - although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result fromexpenses or investments. This holds true for both business and personal finance.
2. An accounting statement called the "statement of cash flows", which shows the amount ofcash generated and used by a company in a given period. It is calculated by adding noncash charges (such as depreciation) to net income after taxes. Cash flow can beattributed to a specific project, or to a business as a whole. Cash flow can be used as an indication of a company's financial strength.
Investopedia explains Cash Flow
1. Inbusiness as in personal finance, cash flows are essential to solvency. They can be presented as a record of something that has happened in the past, such as the sale of aparticular product, or forecasted into the future, representing what a business or a person expects to take in and to spend. Cash flow is crucial to an entity's survival.Having ample cash on hand will ensure that creditors, employees and others can be paid on time. If a business or person does not have enough cash to support itsoperations, it is said to be insolvent, and a likely candidate for bankruptcy should the insolvency continue.
2. The statement of a business's cash flows is often used byanalysts to gauge financial performance. Companies with ample cash on hand are able to invest the cash back into the business in order to generate more cash and profit.