cash flow

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Cash flow

In investments, cash flow represents earnings before depreciation, amortization, and non-cash charges. Sometimes called cash earnings. Cash flow from operations (called funds from operations by real estate and other investment trusts) is important because it indicates the ability to pay dividends.

Cash Flow

1. Cash that comes into or goes out of a person's or company's account. Cash flow can come from any number of sources and is crucial for a business' continued operation and a person's continued survival. Cash inflow may come from wages, salary, sales, loans, revenue from operations, or even personal gifts. Cash outflow usually comes from expenses and investments. It is crucially important to maintain a positive net cash flow insofar as possible.

2. In accounting, an item on a financial statement indicating cash flow.

cash flow

The amount of net cash generated by an investment or a business during a specific period. One measure of cash flow is earnings before interest, taxes, depreciation, and amortization. Because cash is the fuel that drives a business, many analysts consider cash flow to be a company's most important financial statistic. Firms with big cash flows are frequently takeover targets because acquiring firms know that the cash can be used to help pay off the costs of the acquisitions. See also free cash flow.
Case Study Financial analysts generally consider cash flow to be the best measure of a company's financial health. Increased cash flow means more funds are available to pay dividends, service or reduce debt, and invest in new assets. On the other hand, reported net income is heavily influenced by a firm's accounting practices. Reduced income generally means lower taxes and more cash, thus the same accounting practices that reduce net income can actually increase cash flow. A firm with large amounts of new investments and corresponding high depreciation charges might report low or negative earnings at the same time it has large cash flows to service debt and to acquire additional assets. Cable companies have huge investment requirements and are typical of firms that may be quite healthy in spite of reporting net losses. In early 1996, TCI Communications, at the time the nation's largest cable operator, reported fourth-quarter results that included a net loss of $70 million, more than double the loss reported in the year-earlier quarter. At the same time, the firm added more than a million new customers and reported a 25% increase in revenues. It also reported a 5% increase in cash flow. Thus, although TCI reported an additional loss, the quarter was generally considered quite successful. Operating cash flow, calculated as cash flow (the sum of net income and noncash expenses such as depreciation, depletion, and amortization) plus interest expense plus income tax expense, is an important consideration in corporate acquisitions because it indicates the cash flow that is available to service a firm's debt.

Cash flow.

Cash flow is a measure of changes in a company's cash account during an accounting period, specifically its cash income minus the cash payments it makes.

For example, if a car dealership sells $100,000 worth of cars in a month and spends $35,000 on expenses, it has a positive cash flow of $65,000. But if it takes in only $35,000 and has $100,000 in expenses, it has a negative cash flow of $65,000.

Investors often consider cash flow when they evaluate a company, since without adequate money to pay its bills, it will have a hard time staying in business.

You can calculate whether your personal cash flow is positive or negative the same way you would a company's. You'd subtract the money you receive (from wages, investments, and other income) from the money you spend on expenses (such as housing, transportation, and other costs).

If there's money left over, your cash flow is positive. If you spend more than you have coming in, it's negative.

Cash flowclick for a larger image
Fig. 18 Cash flow. A trader sells 10 units at £10 each will cost £5 each.

Sales: 10 x £10 = £100

Cost: 10 x £5 = £50

Profit: 10 x £5 = £50

cash flow

the money coming into a business from sales and other receipts and going out of the businesses in the form of cash payments to suppliers, workers, etc. Cash receipts and cash payments in a trading period are not necessarily the same as the accounting revenues and cost applicable to that same period, because customers need not pay cash for goods sold until some time afterwards while the firm may not pay for materials and services used until afterwards. Fig. 18 overleaf shows the main causes of disparities between cash flow and profit. See SOURCES AND USES OF FUNDS STATEMENT.

cash flow

the money coming into a business from sales and other receipts and going out of the business in the form of cash payments to suppliers, workers, etc.

cash flow

(1) Noun:The cash available from an investment after receipt of all revenues and after payment of all bills.(2) Verb:The process of creating cash flow,as in “I think that property will start to cash flow in about a year.”A property can have positive cash flow (good) or negative cash flow (usually bad).Cash flow is not the same thing as profitability.A property can be profitable,meaning gross income less expenses, depreciation, and interest on debts results in a positive number. That same property can have a negative cash flow because of the need to pay principal payments on loans or expend money for something that represents a capital expenditure,like a new roof.

References in periodicals archive ?
Construction contractors who do not prepare for major VAT changes may face a host of financial difficulties from cashflow problems to reduced profit.
CDL Executive Chairman Mr Kwek Leng Beng said, This offers investors a rare opportunity to participate in the cashflow from high-quality assets in Sentosa Cove.
Neil Graham, CEO of CashFlows said: “We were delighted, along with the other signatories to the open letter, to be invited to meet with Mr Carney at the Bank of England.
Nick Ogden, CEO, CashFlows, said, 'CashFlows is able to innovate and differentiate itself from high street banks because we have re-designed and simplified the financial services supply chain, building a new business service from scratch.
In the strategic partnership with ROK, CashFlows will deliver prepaid card issuing services for two specific programmes, with an initial card order for over 50,000 cards.
Well, according to Bowles, such frustration could be a thing of the past with a new cashflow forecasting programme he has helped develop over the past three years.
"That is what private equity buyers like; they can borrow to buy the company and use those cashflows to pay debt down."
Firms with smoother cashflows can gain a competitive advantage over other companies in their industry.
Since tax rates are progressive - that is, a higher income attracts a higher percentage tax - smoothing cashflows across tax years reduces the tax percentage, and thus the tax liability.
Intuitive techniques rely not on detailed analysis of the uncertainties surrounding cashflows but rather on simple rules of thumb or heuristics[2].
CEO at CashFlows, Neil Graham, said : "The collaboration between CashFlows and Clear Books will reduce the time small business spend manually processing invoices and give them greater visibility of their cash flow.
However, without the underlying cashflows, they tend to be more preventative measures rather than proactive ones.