Cash Flow is either an incoming revenue or outgoing expense stream that affects the value of any cash account over time. Inflows of cash, or positive cash flows, typically result from one of three possible activities, including operations, investing, or financing for businesses or individuals. Individuals are also able to realize positive cash flows from gifts or donations.
Negative cash flow is also called cash outflows. Outflows of cash happen because of either expenses or investments made. This is the case for both individuals’ finances, as well as for those of businesses.
Where both individual finances and business corporate finances are concerned, positive cash flows are required to maintain solvency. Cash flows could be demonstrated because of a past transaction like selling a business product or a personal item or investment. They might also be projected into a future time for some consideration that a company or individual anticipates receiving and then possibly spending. No person or corporation can survive for long without cash flow.
Positive cash flow is essential for a variety of needs. Sufficient cash flow allows for money for you to pay your personal bills and creditors. It also allows a business to cover the costs of employee payroll, suppliers’ bills, and creditors’ payments in a timely fashion. When individuals and businesses lack sufficient cash on hand to maintain their budget or operations, then they are named insolvent. Lasting insolvency generally leads to personal or corporate bankruptcy.
For businesses, statements of cash flows are created by accountants. These demonstrate the quantity of cash that is created and utilized by a corporation in a certain time frame. Cash flows in this definition are calculated by totaling net income following taxes with non cash charges like depreciation. Cash flow is able to be assigned to either a business’ entire operations or to one particular segment or project of the company. Cash flow is often considered to be an effective measurement of a business’ ongoing financial strength.
Cash flows are also used by business and individuals to ascertain the value or return of a project or investment. The numbers of cash flows in to and out of such projects and investments are often utilized as inputs for indicators of performance like net present value and internal rate of return. A problem with a business’ liquidity can also be determined by measuring the entire entity’s cash flow.
Many individuals prefer investments that yield periodic positive cash flow over ones that pay only one time capital gains. High yielding dividend stocks, energy trusts, and real estate investment trusts are all examples of positive cash flow investments. Real estate properties can also be positive cash flow yielding investments when they provide greater amounts of rental income than their combined monthly mortgage payments, maintenance expenses, and property management upkeep costs and outflows total.