What is cash flow

Cash flow, also known as payment flow or cash flow, is an accounting term used to show the difference between payments and receipts in an accounting period in a company. Cash flow is a term that is widely used in connection with financial analysis in a business.

When calculating a company’s cash flow, you compare expenses and income. You should do this before any depreciation. It can, for example, be payments for operating costs, taxes, and financing costs set against operating income and financial income.

Other costs and income are not included in the calculation, an example of something that is not included in the cash flow is depreciation of assets. The calculation shows whether the company has had a profit or loss in the accounting period. Profit is also called positive cash flow and loss is called negative cash flow. If you have a positive cash flow, your company will be considered liquid, meaning you can pay for yourself.

If it turns out that your company has a negative cash flow, and that there are more expenses than income, you must consider whether you make any changes to the company or borrow more capital. The company’s liquidity is therefore worse if you have a negative cash flow. If you have a negative cash flow, you should analyze which parts of your business are making money and what you might be able to cut back on.

Try our free cash flow forecast template.

What is cash flow analysis?

A cash flow analysis shows the financial condition of a company and provides a detailed overview of the cash flow of the company. The analysis shows all receipts and payments that affect the company’s finances. Such an analysis can be important to use when budgeting or making changes to the company.

Unlike an annual report, a cash flow analysis only includes actual receipts and payments. Unpaid invoices and assignments are also included in an annual report. Cash flow analysis can also be called a cash flow statement.