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    Cash Flow Analysis
    Cash Flow Analysis
    Cash Flow Analysis
    Ebook30 pages25 minutes

    Cash Flow Analysis

    By IntroBooks Team

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    About this ebook

    Cash flow refers to the total amount of cash-equivalents or real
    cash that moves in and out of business. Cash flow can be
    either positive or negative. Positive cash flow refers to increase
    in the liquid assets of a company, which will make it easy for
    the said company to take care of its financial obligations, like
    saving for the future, paying expenses, paying shareholders,
    reinvesting in the business, settling debts, and so on.
    Negative cash flow, on the other hand, means the liquid asset
    of the company is on the decline, which may make it
    impossible for the company to settle its various financial
    obligations. There is a difference between net cash flow and net
    income; the latter can include items for which the company has
    not received payment and account receivable. The quality of the
    income owned by a company can be assessed using cash flow
    phenomenon. It refers to how liquid the income is, and can
    give an insight into the possibility of the company remaining
    solvent.
    Accrual accounting is one of the many aspects of cash flow
    analysis, and it enables a company to count their chickens
    before they hatch; this is because accrual accounting considers
    credit when calculating the income of the company. In this
    situation, the company can add settlement due from customers
    and accounts receivable as part of the items on its balance
    sheet. These may not count as cash, but they are added,
    anyway, as part of the cash flow of the company.
    Cash inflow of a company can also be from the sales of its
    long-term assets. The company will, therefore, increase its
    liquidity, but at the same time, it will be limiting its growth
    potential in the long term; in such a situation, the company
    may be preparing itself for failure. A company can also borrow
    money and issue bonds to increase liquidity, but the outcome
    may also not be palatable in the long run. When considering
    the true state of a company, therefore, it is better to consider
    both the income statement and the cash flow statement of the
    company together.
    Cash Flow Statement
    This is also referred to as the statement of cash flow. This
    statement can adequately show if the income of the company is
    languishing or not, considering the number of IOUs in the
    statement. Having a high number of IOUs is never a
    sustainable situation for any company in the long term; neither
    does it translate into an increase in cash flow. Lack of
    cash-equivalent and real cash for settling short-term liabilities
    can render a company insolvent even if the company is very
    profitable. The company may not have the liquid cash for
    survival in the case of a lawsuit or business downturn if the
    profit recorded by the company is tied up in inventory, prepaid
    expenses and accounts receivable. The quality of a company's
    income is determined by cash flow. The company should be
    deeply concerned if its net income is less than its cash flow.
    Cash flow statement can be categorised into three, as
    highlighted below
    1. Financing cash flow
    2. Investing cash flow and
    3. Operating cash flow
    Operating cash flow represents cash flow that relates to the
    day-to-day operations of the company. Investing Cash Flow
    talks about the acquisitions and other investments of the
    company. The investment can be long-term or short-term; good
    examples of long-term investments are securities and towers for
    a telecommunication service provider. On the other hand,

    LanguageEnglish
    PublisherIntroBooks
    Release dateNov 3, 2019
    ISBN9781393696612

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      Book preview

      Cash Flow Analysis - IntroBooks Team

      Cash FlowAnalysis

      IntroBooks #408

      readintrobooks.com

      Copyright © 2017 IntroBooks

      All rights reserved.

      Preface

      Cash flow refers to the total amount of cash-equivalents or real cash that moves in and out of business. Cash flow can be either positive or negative. Positive cash flow refers to increase in the liquid assets of a company, which will make it easy for the said company to take care of its financial obligations, like saving for the future, paying expenses, paying shareholders, reinvesting in the business, settling debts, and so on.

      Negative cash flow, on the other hand, means the liquid asset of the company is on the decline, which may make it impossible for the company to settle its various financial obligations. There is a difference between net cash flow and net income; the latter can include items for which the company has not received payment and account receivable. The quality of the income owned by a company can be assessed using cash flow phenomenon. It refers to how liquid the income is, and can give an insight into the possibility of the company remaining solvent.

      Accrual accounting is one of the many aspects of cash flow analysis, and it enables a company to count their chickens before they hatch; this is because accrual accounting considers credit when calculating the income of the company. In this situation, the company can add settlement due from customers and accounts receivable as part of the items on its balance sheet. These may not count as cash, but they are added, anyway, as part of the cash flow of the company.

      Cash inflow of a company can also be from the sales of its long-term assets. The company will, therefore, increase its liquidity, but at the same time, it will be limiting its growth potential in the long term; in such a situation, the company may be

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