Quick overview of Cash Flow

Cash flow (CF) refers to the movement of cash into and out of a business over a specific period of time. It is a key indicator of a company's liquidity, solvency, and financial health.

Understanding CF helps businesses...

• manage their day-to-day operations,

• pay off debts,

• and plan for future growth.

Operating Cash Flow (OCF). This represents the cash generated or used in the normal operations of a business. It reflects the company's ability to generate cash from core activities. It's crucial for assessing the sustainability of operations. It includes...

• cash inflows from sales of goods or services

• and cash outflows for operating expenses like wages, rent, and utilities.

Investing Cash Flow (ICF). This covers cash used for or generated by investments in long-term assets. It indicates spend on growth or asset purchases, a income from those investments. It includes...

• cash outflows for purchasing equipment, property, or other capital expenditures,

• and inflows from selling assets or investments.

Financing Cash Flow (FCF). This section shows the cash movements between the company and its investors or creditors. It includes...

• cash inflows from issuing shares or taking on loans

• and outflows from repaying loans, paying dividends, or repurchasing shares.

It reveals how the company finances its activities and how it returns value to shareholders.

Why is cash flow important?

• Liquidity. Cash flow shows how much actual cash the company has available. Can it cover short-term obligations? Like paying suppliers or employees?

• Profit vs. Cash. A company can be "profitable" but still struggle if it doesn’t have enough cash coming in to meet immediate needs.

• Planning and Growth. Positive cash flow enables companies to invest in growth, take advantage of opportunities, and avoid financial distress.