Posted in Finance, Accounting and Economics Terms, Total Reads: 562
Definition: Net Cash Flow
A cash flow is defined as any flow of money into or out of our business over a specified period of time. Hence, net cash flow is the net of all cash flows in your business over that period. It is positive if your cash balance increases and negative if your cash balance decreases.
Operational cash flows are cash flows spent on company’s internal business activities, Investment Cash flows are spent on capital expenditure or for the purchase of long-term assets & financing cash flows is cash flows resultant from the issuance of debt and equity or paying out of dividends. The net cash flows normally find the following applications
• The net cash flows are normally used to find out the internal rate of return and the net present value
• The net cash flows also indicate the liquidity of the company and hence the ability of the company to honor short-term obligations
• The net cash flows also indicate the quality of income generated from accrual accounting
• It also helps in risk-analysis of a financial product