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Cash flow is a term that refers to the amount of cash being received and paid by a business during a defined period of time, sometimes tied to a specific project. Measurement of cash flow can be used Cashflow 101 is an educational tool in board game format designed by Robert Kiyosaki (author of Rich Dad, Poor Dad), which aims to teach the players concepts of investing by having their money work for them in a risk free setting (play money) while simultaneously increasing their financial literacy and... Cash Flow is an Uncle Scrooge-adventure comic written and drew by Don Rosa from 1987 and first of his stories where the Beagle Boys appeared. ... Cash Flow is a television business news program aired every weekday at 10:00am Singapore/Hong Kong/Taiwan time on CNBC Asia. ... For other uses, see Cash (disambiguation). ...

• to evaluate the state or performance of a business or project.
• to determine problems with liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable.
• to generate project rate of returns. The time of cash flows into and out of projects are used as inputs to financial models such as internal rate of return, and net present value.
• to examine income or growth of a business when it is believed that accrual accounting concepts do not represent economic realities. Alternately, cash flow can be used to 'validate' the net income generated by accrual accounting.

Cash flow as a generic term may be used differently depending on context, and certain cash flow definitions may be adapted by analysts and users for their own uses. Common terms (with relatively standardized definitions) include operating cash flow and free cash flow. Accounting liquidity (liquidity) is a measure of the ability of a debtor to pay their debts as and when they fall due. ... In finance, rate of return (ROR) or return on investment (ROI), or sometimes just return, is the ratio of money gained or lost on an investment relative to the amount of money invested. ... The internal rate of return (IRR) is a capital budgeting method used by firms to decide whether they should make long-term investments. ... It has been suggested that this article or section be merged with Discounted cash flow. ... Operating cash flow (or OCF) refers to how much cash a company generates out of the revenues it brings in excluding costs associated with long-term investment on capital items. ... In corporate finance, free cash flow (FCF) is a measure of a firms financial performance. ...

Classification

Cash flows can be classified into:

1. Operational cash flows: Cash received or expended as a result of the company's core business activities.
2. Investment cash flows: Cash received or expended through capital expenditure, investments or acquisitions.
3. Financing cash flows: Cash received or expended as a result of financial activities, such as interests and dividends.

All three together - the net cash flow - are necessary to reconcile the beginning cash balance to the ending cash balance. Cash flow after expenditures affecting payments. Loan draw downs or equity injections, that is just shifting of capital but no expenditure as such, are not considered in the net cash flow. Operating cash flow (or OCF) refers to how much cash a company generates out of the revenues it brings in excluding costs associated with long-term investment on capital items. ... Invest redirects here. ... Capital has a number of related meanings in economics, finance and accounting. ... Finance addresses the ways in which individuals, business entities and other organizations allocate and use monetary resources over time. ... For other senses of this word, see interest (disambiguation). ... This article is about financial dividends. ... Net cash flow (also called cash flow) is a measure of a companys financial health. ... Net cash flow (also called cash flow) is a measure of a companys financial health. ...

Benefits from using Cash flow

The cash flow statement is one of the four main financial statements of a company. The cash flow statement can be examined to determine the short-term sustainability of a company. If cash is increasing (and operational cash flow is positive), then a company will often be deemed to be healthy in the short-term. Increasing or stable cash balances suggest that a company is able to meet its cash needs, and remain solvent. This information cannot always be seen in the income statement or the balance sheet of a company. For instance, a company may be generating profit, but still have difficulty in remaining solvent. In financial accounting, a cash flow statement is a financial statement that shows a companys incoming and outgoing money (sources and uses of cash) during a time period (often monthly or quarterly). ...

The cash flow statement breaks the sources of cash generation into three sections: operational cash flows, investing, and financing. This breakdown allows the user of financial statements to determine where the company is deriving its cash for operations. For example, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash). In such a case, the company may be deriving additional operating cash by issuing shares, or raising additional debt finance.

Companies that have announced significant writedowns of assets, particularly goodwill, may have substantially higher cash flows than the announced earnings would indicate. For example, telecoms firms that paid substantial sums for 3G licenses or for acquisitions have subsequently had to write-off goodwill, that is, indicate that these investments were now worth much less. These write-downs have frequently resulted in large announced annual losses, such as Vodafone's announcement in May 2006 that it had lost £21.9 billion due to a writedown of its German acquisition, Mannesmann, one of the largest annual losses in European history. Despite this large "loss", which represented a sunk cost, Vodafone's operating cash flows were solid: "Strong cash flow is one of the most attractive aspects of the cellphone business, allowing operators like Vodafone to return money to shareholders even as they rack up huge paper losses."^[1] 3G is the third generation of mobile phone standards and technology, superseding 2G, and preceding 4G. It is based on the International Telecommunication Union (ITU) family of standards under the International Mobile Telecommunications programme, IMT-2000. ... Vodafone Group Plc is a mobile network operator headquartered in Newbury, Berkshire, England, UK. It is the largest mobile telecommunications network company in the world by turnover and has a market value of about £84. ... Mannesmann AG is a German corporation with headquarters in Duesseldorf. ...

In certain cases, cash flow statements may allow careful analysts to detect problems that would not be evident from the other financial statements alone. For example, WorldCom committed an accounting fraud that was discovered in 2002; the fraud consisted primarily of treating ongoing expenses as capital investments, thereby fraudulently boosting net income. Use of one measure of cash flow (free cash flow) would potentially have detected that there was no change in overall cash flow (including capital investments).^[2] In corporate finance, free cash flow (FCF) is a measure of a firms financial performance. ...

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Dangers of isolating Operating cash flow

When analysts and the media refer to 'cash flow', they are most likely referring to "Operating Cash Flow". This is only one of the three types of cash flows. There are inherent problems in isolating only this type of flow, because businesses can easily manipulate the classification.

Common methods of distorting the results include:

• Sales - Sell the receivables to a factor for instant cash. (leading)
• Inventory - Don't pay your suppliers for an additional few weeks at period end. (lagging)
• Sales Commissions - Management can form a separate (but unrelated) company to act as its agent. The book of business can then be purchased quarterly as an investment.
• Wages - Remunerate with stock options.
• Maintenance - Contract with the predecessor company that you prepay five years worth for them to continue doing the work
• Equipment Leases - Buy it
• Rent - Buy the property (sale and lease back, for example).
• Oil Exploration costs - Replace reserves by buying another company's.
• Research & Development - Wait for the product to be proven by a start-up lab; then buy the lab.
• Consulting Fees - Pay in shares from treasury since usually to related parties
• Interest - Issue convertible debt where the conversion rate changes with the unpaid interest.
• Taxes - Buy shelf companies with TaxLossCarryForward's. Or gussy up the purchase by buying a lab or O&G explore co. with the same TLCF.^{[citation needed]}

Example of a positive $40 cash flow

In this example the following types of flows are included:

• Incoming loan: financial flow
• Sales: operational flow
• Materials: operational flow
• Labor: operational flow
• Purchased Capital: Investment flow
• Loan Repayment: financial flow
• Taxes: financial flow

Let us, for example, compare two companies using only total cash flow and then separate cash flow streams. The last three years show the following total cash flows: For other uses, see Loan (disambiguation). ... Taxes redirects here. ...

Company A:
Year 1: cash flow of +10M
Year 2: cash flow of +11M
Year 3: cash flow of +12M

Company B:
Year 1: cash flow of +15M
Year 2: cash flow of +16M
Year 3: cash flow of +17M

Company B has a higher yearly cash flow and looks like a better one in which to invest. Now let us see how their cash flows are made up:

Company A:

Year 1: OC: +20M FC: +5M IC: -15M = +10M
Year 2: OC: +21M FC: +5M IC: -15M = +11M
Year 3: OC: +22M FC: +5M IC: -15M = +12M

Company B:

Year 1: OC: +10M FC: +5M IC: 0 = +15M
Year 2: OC: +11M FC: +5M IC: 0 = +16M
Year 3: OC: +12M FC: +5M IC: 0 = +17M

• OC = Operational Cash, FC = Financial Cash, IC = Investment Cash

Now it seems that Company A is actually earning more cash by its core activities and has already spent 45M in long term investments, of which the revenues will only show up after three years. When comparing investments using cash flows always make sure to use the same cash flow layout.

See also

• Cash flow hedge
• Cash flow projection
• Cash flow statement
• Cash on cash return
• Discounted cash flow
• Free cash flow
• Income statement
• Internal rate of return
• Net present value
• Return of capital

A cash flow hedge is a hedge of the exposure to the variability of cash flow that is attributable to a particular risk associated with a recognized assets or liability. ... It has been suggested that this article or section be merged into Cash flow. ... In financial accounting, a cash flow statement is a financial statement that shows a companys incoming and outgoing money (sources and uses of cash) during a time period (often monthly or quarterly). ... // Definition and Formula In investing, the cash-on-cash return is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. ... In finance, the discounted cash flow (or DCF) approach describes a method to value a project, company, or financial asset using the concepts of the time value of money. ... In corporate finance, free cash flow (FCF) is a measure of a firms financial performance. ... An Income Statement, also called a Profit and Loss Statement (P&L), is a financial statement for companies that indicates how Revenue (money received from the sale of products and services before expenses are taken out, also known as the top line) is transformed into net income (the result after... The internal rate of return (IRR) is a capital budgeting method used by firms to decide whether they should make long-term investments. ... It has been suggested that this article or section be merged with Discounted cash flow. ... Return on capital, also known as Return On Invested Capital (ROIC) is defined as NOPLAT / Invested Capital usually expressed as a percentage. ...

References

The International Herald Tribune is a widely read English language international newspaper. ... Year 2006 (MMVI) was a common year starting on Sunday of the Gregorian calendar. ... is the 150th day of the year (151st in leap years) in the Gregorian calendar. ... BusinessWeek is a business magazine published by McGraw-Hill. ... Also see: 2002 (number). ... is the 189th day of the year (190th in leap years) in the Gregorian calendar. ...

External Lınks

• Apples & Oranges busıness sımulatıon by Celemı, a board-based learnıng tool to understand busıness fınance experıencıng a case ın an engagıng sessıon usıng the model desıgned by Klas Mellander.
• International Federation of Accountants International Good Practice Guidance on Project Appraisal Using Discounted Cash Flow