Cash flow

Definition

Cash flow is the net amount of cash being transferred into and out of a business. It represents the company's operating, investing, and financing activities over a specific period.

5 Must Know Facts For Your Next Test

1. Cash flow can be categorized into operating, investing, and financing activities.
2. Positive cash flow indicates that a company has more money flowing in than out.
3. Negative cash flow means that a company is spending more cash than it receives.
4. Unequal multiple payment values affect the timing and calculation of cash flows in financial modeling.
5. Discounted cash flow (DCF) analysis uses future cash flows to estimate present value.

Review Questions

• What are the three main categories of cash flow?
• How does negative cash flow impact a company's financial health?
• Why is the timing of cash flows important in financial modeling?

Related terms

Present Value (PV): The current value of future cash flows discounted at the appropriate discount rate.

Net Present Value (NPV): The difference between the present value of cash inflows and outflows over a period.

Discount Rate: The interest rate used to discount future cash flows to their present values.