Quick Summary
Cash Flow represents the movement of cash in a business from operations, investing, and financing activities.
Cash Flow refers to the movement of money into and out of a business. It is reported in the Cash Flow Statement, one of the three main financial statements. Positive cash flow means more money is coming in than going out.
Types of Cash Flow
- Operating Cash Flow (OCF): Cash from core business operations
- Investing Cash Flow: Cash from buying/selling assets
- Financing Cash Flow: Cash from borrowing, equity, dividends
Cash Flow Statement Format
Opening Cash Balance
+ Operating Cash Flow
+/- Investing Cash Flow
+/- Financing Cash Flow
= Closing Cash Balance
Example
- Operating Cash Flow: +₹50 lakhs
- Investing Cash Flow: -₹20 lakhs (bought equipment)
- Financing Cash Flow: -₹10 lakhs (repaid loan)
- Net Cash Increase: +₹20 lakhs
Cash Flow vs Profit
- Profit includes non-cash items (depreciation)
- Cash flow reflects actual cash available
- A company can be profitable but cash negative
- Cash is needed to pay bills; profit is not
Key Points
- Three types: Operating, Investing, Financing
- Positive cash flow is essential for survival
- Different from accounting profit
- Reported in Cash Flow Statement
- Operating cash flow is most important