Cash Flow Analysis
2.5/5
()
About this ebook
Cash flow refers to the total amount of cash-equivalents or real
cash that moves in and out of business. Cash flow can be
either positive or negative. Positive cash flow refers to increase
in the liquid assets of a company, which will make it easy for
the said company to take care of its financial obligations, like
saving for the future, paying expenses, paying shareholders,
reinvesting in the business, settling debts, and so on.
Negative cash flow, on the other hand, means the liquid asset
of the company is on the decline, which may make it
impossible for the company to settle its various financial
obligations. There is a difference between net cash flow and net
income; the latter can include items for which the company has
not received payment and account receivable. The quality of the
income owned by a company can be assessed using cash flow
phenomenon. It refers to how liquid the income is, and can
give an insight into the possibility of the company remaining
solvent.
Accrual accounting is one of the many aspects of cash flow
analysis, and it enables a company to count their chickens
before they hatch; this is because accrual accounting considers
credit when calculating the income of the company. In this
situation, the company can add settlement due from customers
and accounts receivable as part of the items on its balance
sheet. These may not count as cash, but they are added,
anyway, as part of the cash flow of the company.
Cash inflow of a company can also be from the sales of its
long-term assets. The company will, therefore, increase its
liquidity, but at the same time, it will be limiting its growth
potential in the long term; in such a situation, the company
may be preparing itself for failure. A company can also borrow
money and issue bonds to increase liquidity, but the outcome
may also not be palatable in the long run. When considering
the true state of a company, therefore, it is better to consider
both the income statement and the cash flow statement of the
company together.
Cash Flow Statement
This is also referred to as the statement of cash flow. This
statement can adequately show if the income of the company is
languishing or not, considering the number of IOUs in the
statement. Having a high number of IOUs is never a
sustainable situation for any company in the long term; neither
does it translate into an increase in cash flow. Lack of
cash-equivalent and real cash for settling short-term liabilities
can render a company insolvent even if the company is very
profitable. The company may not have the liquid cash for
survival in the case of a lawsuit or business downturn if the
profit recorded by the company is tied up in inventory, prepaid
expenses and accounts receivable. The quality of a company's
income is determined by cash flow. The company should be
deeply concerned if its net income is less than its cash flow.
Cash flow statement can be categorised into three, as
highlighted below
1. Financing cash flow
2. Investing cash flow and
3. Operating cash flow
Operating cash flow represents cash flow that relates to the
day-to-day operations of the company. Investing Cash Flow
talks about the acquisitions and other investments of the
company. The investment can be long-term or short-term; good
examples of long-term investments are securities and towers for
a telecommunication service provider. On the other hand,
Read more from Intro Books Team
Crash Course Financial Analysis Rating: 0 out of 5 stars0 ratingsIntroduction to Business Management Rating: 5 out of 5 stars5/5Child Development Theories Rating: 0 out of 5 stars0 ratingsMechatronics Rating: 4 out of 5 stars4/5Production Management Rating: 4 out of 5 stars4/5Management Information System Rating: 0 out of 5 stars0 ratingsDesign Thinking Rating: 0 out of 5 stars0 ratingsIntroduction to Pricing Strategies Rating: 5 out of 5 stars5/5Investment Banking Crash Course Rating: 4 out of 5 stars4/5Crash Course Financial Modelling Rating: 5 out of 5 stars5/5Learn and Understand Business Analysis Rating: 4 out of 5 stars4/5Crash Course Business Agreements and Contracts Rating: 3 out of 5 stars3/5Balanced Scorecard for Performance Measurement Rating: 3 out of 5 stars3/5Psychology of Color Rating: 4 out of 5 stars4/5Project Finance Rating: 0 out of 5 stars0 ratingsFinancial Statement Analysis Fundamentals Rating: 0 out of 5 stars0 ratingsManagerial Accounting Rating: 0 out of 5 stars0 ratingsIndustry 4.0 Rating: 4 out of 5 stars4/5Introduction to Chemistry Rating: 0 out of 5 stars0 ratingsManagerial Economics Crash Course Rating: 5 out of 5 stars5/5Artificial Intelligence in Banking Rating: 0 out of 5 stars0 ratingsIntroduction to Strategy Rating: 3 out of 5 stars3/5Basic Project Management Rating: 0 out of 5 stars0 ratingsHistory of Israel - Palestine Conflict Rating: 4 out of 5 stars4/5Business English Rating: 0 out of 5 stars0 ratingsFundamentals of Physics Rating: 0 out of 5 stars0 ratingsTeaching Methods Rating: 0 out of 5 stars0 ratingsLearning Theories Rating: 5 out of 5 stars5/5Applied Economics Rating: 0 out of 5 stars0 ratings
Related to Cash Flow Analysis
Related ebooks
Ratios Made Simple: A beginner's guide to the key financial ratios Rating: 4 out of 5 stars4/5Financial Accounting for Entrepreneurs Rating: 0 out of 5 stars0 ratingsBusiness Finance Rating: 0 out of 5 stars0 ratingsFinancial Literacy for Managers: Finance and Accounting for Better Decision-Making Rating: 5 out of 5 stars5/5Understanding Financial Statements (Review and Analysis of Straub's Book) Rating: 5 out of 5 stars5/5Financial Statements: A Simplified Easy Accounting and Business Owner Guide to Understanding and Creating Financial Reports Rating: 0 out of 5 stars0 ratingsFinance for Business Managers Rating: 0 out of 5 stars0 ratingsWhat is Financial Accounting and Bookkeeping Rating: 4 out of 5 stars4/5The Essentials of Finance and Accounting for Nonfinancial Managers Rating: 0 out of 5 stars0 ratingsCrash Course Income Statement Rating: 0 out of 5 stars0 ratingsA Study in Statements Rating: 0 out of 5 stars0 ratingsAccounting: Step by Step Guide to Accounting Principles & Basic Accounting for Small business Rating: 4 out of 5 stars4/5Valuation of Young Companies Rating: 0 out of 5 stars0 ratingsCrash Course Modern Accounting Rating: 0 out of 5 stars0 ratingsBusiness Capital: The Basics Rating: 0 out of 5 stars0 ratingsAccounting: A Simple Guide to Financial and Managerial Accounting for Beginners Rating: 0 out of 5 stars0 ratingsBusiness Valuation Rating: 0 out of 5 stars0 ratingsFinance for Nonfinancial Managers: A Guide to Finance and Accounting Principles for Nonfinancial Managers Rating: 0 out of 5 stars0 ratingsFinancial Accounting - Want to Become Financial Accountant in 30 Days? Rating: 5 out of 5 stars5/5Financial Accounting Handbook Rating: 0 out of 5 stars0 ratingsHow To Read Your Financial Statements Rating: 5 out of 5 stars5/5The Ultimate Guide To Cash Flow Management Rating: 0 out of 5 stars0 ratingsStreetwise Incorporating Your Business: From Legal Issues to Tax Concerns, All You Need to Establish and Protect Your Business Rating: 0 out of 5 stars0 ratingsImproving Corporate Cash Flow Rating: 2 out of 5 stars2/5Business Skills: Finance, Money Management, and Marketing Rating: 0 out of 5 stars0 ratingsHow to Read (and Understand) Financial Statements Rating: 4 out of 5 stars4/5Financial Statement Analysis Fundamentals Rating: 0 out of 5 stars0 ratings
Investments & Securities For You
Principles: Life and Work Rating: 4 out of 5 stars4/5Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple Rating: 5 out of 5 stars5/5Stock Investing For Dummies Rating: 5 out of 5 stars5/5The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns Rating: 4 out of 5 stars4/5The Intelligent Investor, Rev. Ed: The Definitive Book on Value Investing Rating: 4 out of 5 stars4/5Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game Rating: 5 out of 5 stars5/5Just Keep Buying: Proven ways to save money and build your wealth Rating: 5 out of 5 stars5/5How to Invest: Masters on the Craft Rating: 4 out of 5 stars4/5Don't Start a Side Hustle!: Work Less, Earn More, and Live Free Rating: 5 out of 5 stars5/5Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties Rating: 5 out of 5 stars5/5Girls That Invest: Your Guide to Financial Independence through Shares and Stocks Rating: 5 out of 5 stars5/5The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications Rating: 5 out of 5 stars5/5How to Invest in Real Estate: The Ultimate Beginner's Guide to Getting Started Rating: 5 out of 5 stars5/5The Money Game Rating: 4 out of 5 stars4/5Stock Market Investing for Beginners & Dummies Rating: 5 out of 5 stars5/5
Reviews for Cash Flow Analysis
3 ratings0 reviews
Book preview
Cash Flow Analysis - IntroBooks Team
Cash FlowAnalysis
IntroBooks #408
readintrobooks.com
Copyright © 2017 IntroBooks
All rights reserved.
Preface
Cash flow refers to the total amount of cash-equivalents or real cash that moves in and out of business. Cash flow can be either positive or negative. Positive cash flow refers to increase in the liquid assets of a company, which will make it easy for the said company to take care of its financial obligations, like saving for the future, paying expenses, paying shareholders, reinvesting in the business, settling debts, and so on.
Negative cash flow, on the other hand, means the liquid asset of the company is on the decline, which may make it impossible for the company to settle its various financial obligations. There is a difference between net cash flow and net income; the latter can include items for which the company has not received payment and account receivable. The quality of the income owned by a company can be assessed using cash flow phenomenon. It refers to how liquid the income is, and can give an insight into the possibility of the company remaining solvent.
Accrual accounting is one of the many aspects of cash flow analysis, and it enables a company to count their chickens before they hatch; this is because accrual accounting considers credit when calculating the income of the company. In this situation, the company can add settlement due from customers and accounts receivable as part of the items on its balance sheet. These may not count as cash, but they are added, anyway, as part of the cash flow of the company.
Cash inflow of a company can also be from the sales of its long-term assets. The company will, therefore, increase its liquidity, but at the same time, it will be limiting its growth potential in the long term; in such a situation, the company may be