On Economy and Finance, Cash flow , is the name used in the English language to refer to the cash flow or flow of funds or cash, as it is also known; the cash flow It implies the inflows and outflows of cash or cash, in a certain period and therefore constitutes a more than concrete indicator of the liquidity held by a certain company.
So, from the cash flow we can know the statement of account, how much cash is left in it after expenses, payment of principal and interest.
It should be noted that cash flow is an accounting statement that presents information on all movements of cash and its equivalents.
Meanwhile, the study of a company's cash flow can be used to determine different issues, including: liquidity problems, to analyze the viability of investment projects, to measure the profitability of a business, among others.
Cash flows can be classified as follows: operational cash flows (cash received or expended, as a product of economic activities), investment cash flows (cash received or expended taking into account capital investment expenses that will tend to benefit the future business, for example, the purchase of new equipment) and financing cash flows (It is the cash received or expended as a result of financial activities such as the receipt or payment of loans, issuance or repurchase of shares, payment of dividends, among others).
If the company makes a projection of the aforementioned statements, it will be able to foresee if in the future it will have the necessary cash to cover its expenses and also obtain profits.
From the aforementioned, it can be inferred that the analysis of cash flow turns out to be an extremely valuable issue for small and medium-sized companies, which are those that are usually affected by lack of liquidity, to satisfy those more immediate needs. This way, forecasts can be made and it will help to avoid those emergency actions that, in the long run, will generate financial complications, such as having to resort to a financier to request a loan.
Cash flow will definitely make financial management effective because it directly contributes to making the best decisions and facilitates the control of expenses in order to improve profitability..
