What Is Cash Flow?

Cash flow is the increase or decrease in the amount of cash and cash equivalents a company has. Cash flow is generated by business operations, investments, and financing.

Cash flow can either be positive or negative. A positive cash flow shows that the company has enough money to meet its future expenses. On the other hand, a negative cash flow reflects that the company isn’t utilizing its cash and cash equivalents efficiently.

There are three main types of cash flow with different uses for running a business and performing financial analysis.

Operating Cash Flow: It measures the net cash generated from normal business operations within a specified time period. These business operations include cash activities related to revenue and expense.

Investing Cash Flow: It measures the net cash generated from investing activities such as securities investments and purchasing assets. It shows how much money a company spent or made through investment activities within a given time period.

Financing Cash Flow: It measures the net cash generated from financing a business within a certain time period. It shows how much funding a company earns from things like taking out loans, or issuing new equity.