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Cash flow, its contents and How it’s necessary for business success.


Definition=

The flow of cash (the cash also includes cash equivalent items i.e. treasury bills, money market funds, investment in shares for three months etc.) inside and outside of the business is known as cash flow  and the statement which shows inflow and outflow of business cash is called statement of cash flow.

Contents=

  • The cash flow contents includes business activities like operating activities, investing activities, financing activities. Now the question could be raised in mind that how these activities affects cash flows in answer to the question the following points may be considered:
  • The cash flow inside or outside which is because of operating activities can affect the net income of the business.
  • The cash flow inside or outside which is because of investing activities can affect the non-current assets of the business. And
  • The inflow and outflow of the cash because of financing activities can affect the equities and debts of the business.

Importance of cash flow=

  • For every business it is very necessary to keep an eye on where from cash is coming and where it is being investing and how effectively business is managing finance required in order to keep the business successful.
  • Cash flow is important because it provides the detail about inflow and outflow which helps in making decisions.
  • It helps the business to deal with outstanding debts on time.
  • It tells you about if your cash inflow is more than its outflow than its positive cash flow otherwise its negative cash flow.
  • It provides the detail of positive and negative cash flow after which management take actions to avoid negative cash flows.
  • Cash flow is widely used to measure company’s strength.
  • Investor also takes a view of cash flow of the company before investing.


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