Cash Flow

Posted in Finance, Accounting and Economics Terms, Total Reads: 867

Definition: Cash Flow

Cash flow comprises of all the revenues and expenses that a firm undertakes in any given time period. These cash flows are carried out under 3 main heads-

  1. Investing decisions
  2. Financing decisions
  3. Operating decisions

A firm is said to be in a healthy state if it is able to generate positive cash flows i.e. revenues > expenses. A more specific term is Free Cash Flows (FCF) which indicates the available cash with the company after incurring all the necessary expenses.

FCF= EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital – Capital Expenditure

FCF denoted the available amount with the firm which can be given out to the shareholders and hence indicates the health of a company. It is the FCF which an investor usually looks at while analyzing a firm.


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