Cashflow (term in English to refer to cash or treasury flow) is a concept that explains the inflows and outflows of cash (cash) in a company in a given period . It is an indicator that shows the liquidity of a company. What is cash flow analysis with types
Cash flow is calculated by adding amortizations and provisions to net profit . This is done because both amortizations (the permanent depreciation of an asset due to time and its use) and provisions (the occasional depreciation due to an unforeseen event) do not imply a physical outflow of money, but only an accounting entry of expense. In this way, cashflow allows specifying the cash that a company can generate in a given period, and therefore, it allows measuring the capacity of that company to meet its payments.
Cash flow analysis:
A cash flow analysis determines a company’s working capital—the amount of money available to run business operations and complete transactions. That is calculated as current assets (cash or near-cash assets, like notes receivable) minus current liabilities (liabilities due during the upcoming accounting period).
Types : What is cash flow analysis with types
Cash flows can be classified into three types:
- Operational or operating cashflow: it is the cash flow that enters and leaves the company in relation to its own activity. This includes cash flows from income from sales of products or the provision of services, payment to suppliers and payment of employee salaries …
- Cashflow for investment activities : it is the cash flow that has to do with the investments made by the company, such as the purchase of machinery, real estate investments, acquisitions …
- Cashflow from financing activities : it is the cash flow that is generated as a result of financial activities, such as the payment of loans, the payment of dividends, the issuance of shares …
Therefore, cash flow helps to know the status of a company , if it has liquidity problems even though it is profitable, or if it is healthy and has the capacity to pay its debts.