Cash flow refers to the movement of money into and out of a business, project, or financial product. It is a crucial indicator of an entity’s financial health. Cash flow is typically categorized into three main types:
- Operating:Â This is the cash generated or used by a company’s regular business operations. It includes cash received from sales of goods and services and cash paid for operating expenses like wages, rent, and utilities.
- Investing:Â This includes cash spent on and received from investments in assets, such as the purchase or sale of property, equipment, or securities. It reflects how much a company is spending on investments to support its long-term growth.
- Financing:Â This is the cash flow related to borrowing and repaying debt, issuing and repurchasing equity, and paying dividends. It shows how a company funds its operations and growth through different sources of finance.
The sum of these three types of money flows provides, which indicates the overall increase or decrease in cash for a given period. It’s Positive means the company is generating more cash than it is using, while negative net cash flow indicates the opposite.