Cash flow

Definition

Cash flow refers to the net amount of cash being transferred into and out of a business. It is a crucial indicator of a company's financial health and liquidity.

5 Must Know Facts For Your Next Test

1. Cash flow from operating activities indicates the cash generated or used by core business operations.
2. Investing activities in the cash flow statement include purchases and sales of long-term assets.
3. Financing activities reflect cash movements related to debt, equity, and dividends.
4. Positive cash flow indicates that a company has more money coming in than going out.
5. The indirect method adjusts net income for changes in balance sheet accounts to calculate cash flow from operating activities.

Review Questions

• What are the three main categories of activities in a statement of cash flows?
• How does positive cash flow impact a company's financial health?
• What adjustments are made when using the indirect method to calculate cash flow from operating activities?

Related terms

Operating Activities:

Cash transactions related to the primary operations of the business.

Investing Activities:

Cash transactions for purchasing and selling long-term assets.

Financing Activities:

Cash movements involving debt, equity, and dividend transactions.