What is Cash Flow? Management of Cash Flow.


The statement that reflects how much cash keeps someone after expenses, interest, and capital payments. The expression that in the field of Accounting is known as cash flow statement, therefore, is a type of accounting parameter that provides information about the movements that have been made in a certain period of money or any of its equivalents.

Operating activities, investments, and financing are part of the categories contemplated in the framework of the cash flow statement. The operational cash flow indicates the cash received or invested as a result of the company’s basic activities.
Cash Flow
The cash flow of investment does the same concerning investment expenses (capital, acquisitions, etc.), while the cash flow of financing considers the cash resulting from the receipt or payment of loans, the issues or repurchase of shares and the payment of dividends.

When projecting these states, the company can foresee if it will have the necessary cash to cover its expenses and obtain profits. Analyzing the cash flow statement, therefore, is a very important activity for small and medium companies that usually suffer from a lack of liquidity to meet their immediate needs.

    • The cash flow allows forecasting and helps avoid emergency solutions (such as resorting to financiers to apply for short-term loans and high cost).

It should be noted that the development of cash flow enables the management of finances, contributes to decision making, and facilitates the control of expenditures to improve profitability.
When analyzing the financial situation of a company, it is normal to pay special attention to the operational and profitable issues, based on the data obtained from the Income Statement (whose main objective is to inform if a company produces profits or losses).

Frequently, this study includes collations with previous years, with objectives that have been pre-established or with the status of other firms in the same sector.

In this way, conclusions can be drawn about the financial health of a company that, despite being useful, do not offer the necessary amount of detail and depth. This analysis will not be complete until the evolution of the patrimonial masses is studied, through the so-called Balance of Situation.

It is thus, by combining the results of both accounting documents, that a broader and clearer perspective of the capacity of a company to produce financial resources (cash flow) can be obtained to face the payments.

It is common for financial analysis professionals to interpret a negative cash flow as a worrying signal about liquidity, a clear warning of an excessive level of indebtedness. For this reason, in recent times, there has been a tendency to invest in companies that show a positive and growing result.

Unfortunately, it is very normal to manipulate this data in the case of large companies, both for better and for worse. Nowadays, the financial information of the companies is of public knowledge, thanks to the Internet, and many times the disloyal measures to sink the competition begin through viral type publications (that spread rapidly through the network) and, if they are endorsed by an analyst, they will have enough weight to generate doubts and instability. Slanders fabricated from false or inaccurate data are often enough reason to affect the success of a company in the stock market, even for a short time.