Meaning of the Term “Cash Flow”

In a given period, cash flow is defined as the inflow and outflow of cash and cash equivalents. A cash flow statement is a financial statement that depicts a company's cash inflows and outflows, as well as its financial position in terms of cash and cash equivalents, over time. It aids cash management by assisting in the establishment and construction of a cash budget.

Cash Flow from Different Activities

Cash flows are generated from three types of activities, which are:

1. Operating activities:

Operating activities generate the main revenue for a company and include non-investing and non-financing activities. Examples include salaries, raw materials, and utility bills for manufacturing companies.

2. Investing activities:

Investing activities involve cash flows related to long-term asset acquisition or disposal, including purchases/sales of fixed assets, securities, and acquisitions.

3. Financing activities:

Financing activities involve cash flows related to raising and paying capital, including share issuance, debt repayment, payment of dividends, and interest. Positive cash flow indicates inflow, while negative cash flow can be a concern unless it is due to expansion.