Cash flow.....
Cash flow refers to the movement of money in and out of your business in terms of income and expenditure. Ideally, you want to have a positive cash flow – meaning that more money is coming into the business than goes out.
If you want to work out the net cash flow, you just add up all of your cash payments over a set period (typically a month) and take that away from your cash receipts. It’s important not to get too hung up on one particular month, however. Your cash flow can be more accurately judged over a period of three months or more since most businesses will, naturally, have peaks and troughs.
To illustrate it otherwise, imagine a river that has its source somewhere. Of course, before it finishes its course in the sea or ocean, there are many obstacles to overcome along the way, the dam, the bends of the water soak up the earth and sometimes someone will drink from it.
KEY TAKEAWAYS
Types of Cash Flow
Cash Flows From Operations (CFO)
Cash flow from operations (CFO), or operating cash flow, describes money flows involved directly with the production and sale of goods from ordinary operations
Cash Flows From Investing (CFI)Cash flow from investing (CFI) or investing cash flow reports how much cash has been generated or spent from various investment-related activities in a specific period.
Cash Flows From Financing (CFF)Cash flows from financing (CFF), or financing cash flow, shows the net flows of cash that are used to fund the company and its capital
Free Cash Flow (FCF)Analysts look at free cash flow (FCF) to understand the true profitability of a business. FCF is a really useful measure of financial performance and tells a better story than net income because it shows what money the company has left over to expand the business.
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Cash vs. Real Cash
For some businesses, like restaurants and some retailers, cash is really cash: currency and paper money. The business takes cash from customers and sometimes pays its bills in cash. Cash businesses have a special issue with keeping track of cash flow, especially since they may not track income unless there are invoices or other paperwork.
Why Cash Flow Is So Important
Lack of cash is one of the biggest reasons small businesses fail. It's also called "running out of money," and it will shut you down faster than anything else.
Starting a Business: Dealing with cash flow issues is most difficult when you are starting a business. You have many expenses, and money is going out fast. And you may have no sales or customers who are paying you. You will need some other sources of cash, like through a temporary line of credit, to get you going and on to a positive cash flow situation.
The first six months of a business are a crucial time period for cash flow. If you don't have enough cash to carry you through this time, your chances for success aren't good. Suppliers often won't give credit to new businesses, and your customers may want to pay on credit, giving you a "cash crunch" to deal with.
In estimating your cash flow needs for your startup, include your personal living expenses that will need to come out of the business. The less you need to take from your business for personal costs, the more you can devote to your business during the crucial startup time.
Going back to our comparison, I guess you imagine your cash flow as the Nile is finally the world's longest river. Everyone wants a solid inflow of money The Amazons have been a moot topic for centuries. The difficulty lies in isolating the river proper from among more than 200 tributaries.
Undoubtedly, the Amazon is a river with the highest average flow, which amounts to as much as 300,000 at the mouth of the river. m 3 / s. Such large masses of fresh water cause the discharge of ocean water up to 400 km from the coast.
Let us return to the Nile for a moment. Establishing its sources also caused a lot of controversies. For centuries, the Nile has been the source of life on the desert continent. It is not surprising then that the entire ancient civilization of Egypt originated in the valley of this river.
The Bottom Line?
Like anything else in life, learning how financial markets work takes time. Adopting the easier approach by maintaining a level of ignorance can be dangerous, however, especially when it is the company’s prerogative to boost investor confidence by using as many positive values as possible. Knowing what each term means, why it is being used, and understanding how it affects stock price are just a few ways beginners can gain a better knowledge of the financial markets as well as critical-thinking skills when it comes to financial news.