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Information about Cash Flow

Aastha Dogra
The following story is an attempt to make the concept of cash flow apprehensible for you. Read on to know more...
Accountancy and financial management are not easy subjects. I remember the time when I was a student, I was constantly on a look out for easy ways to understand the various concepts of both these subjects. If you are a student and are looking for some information on cash flow, then you have come to the right place.


Cash flow refers to the flow of money both to the business and from the business. Money coming to the business, also known as cash inflow, is the revenue generated on account of business sales. Money going out of the business, also known as cash outflows, is the expenditure incurred while producing the goods and services of the business. Both inflows and outflows of money, in a specific time period, is referred to the business cash flow.
Cash flow statements represent the liquidity position of a company. Thus, a positive statement is an indication that the company has enough cash to pay its employees, creditors and others it is in business with.
A negative statement indicates that the company is short of cash, i.e. it is insolvent and could end up towards bankruptcy, if the situation is not taken care of.


Cash flow statement can be made for a particular project or for the whole company. It indicates the financial strength of the company or how profitable a specific project is. It is an accounting statement which presents the amount of cash generated by a business, along with the amount of cash used up by the business, in a particular period of time.
In a cash flow statement, the expenses and incomes are listed without any mention of the outstanding received or paid amount. Thus, it represents the liquid position or cash position of the company in a particular time period.
Since these statements do not include non cash items, so for proper analysis, cash flow statements should always be accompanied by details of bad debts, accounts payable, depreciation, inventory in hand and total accounts receivable.


Cash flow forecasts are very essential in order to plan for the future. That's why, cash flow statements, are a very important part of business financial planning. The forecasts include an estimation of the future costs, when the costs will occur and how much, and also an estimation of the revenue, i.e. when and how much revenue will be generated by the business in the coming financial year.
These forecasts are based on the expenses and revenues of the business in the previous years. A new business, in order to plan for the future, often uses tools such as market research for making forecasts of the cash flow.

Advantages of Calculating Cash Flows

There are many advantages of maintaining cash flow statements for businesses. They are used by financial analysts to ascertain the financial performance of the business in a particular period.
The investors keep a close watch on the cash flows of the business and make investment decisions accordingly. Even the companies with positive cash flows, have enough cash on hand and are able to invest this excess cash in the business. This helps in generating even more revenue and profits for the business.
I hope these cash flow notes will help you learn the concept of cash flow, the statements and forecasting, in a better way.