What is Cash Flow?

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He cash flow It is one of the most used concepts in the accounting field of a business, since this term determines the liquidity capacity of a company. This term is known and often translated as cash flow, cash flow, or cash flow.

The cash flow of a company

Companies often use this indicator to check if they are economically profitable, if they can face a new investment or simply if they are able to pay their suppliers. Are the small and medium businesses those who often use this indicator, since they are the ones who, faced with a bad economic situation, may find themselves in trouble.

How is it calculated?

Specifically, this indicator measures the treasury of a business taking into account the inflows and outflows of cash in a given period of time. It is a very good way to find out if financing will be needed in the near future, and thus be able to meet the objectives that the company has set for itself. To calculate it, it is necessary to apply the following formula:

CF = Profit + Amortizations + Provisions

The amortizations and provisions They do not represent an outlet for money as such. The first refer to the permanent depreciation of an asset, due to use and time. A clear example of an amortization can be the purchase of a commercial vehicle. On the other hand, provisions refer to a depreciation at a certain time due to an unforeseen

Control of your business finances is essential to maintain liquidity that allows you to continue evolving and growing, which after all is the objective of any company. Good planning and its corresponding control of all treasury actions can ensure the success.

Types of cash flows

  • Cash Flows from Operations (FCO): The amount of cash generated by activities directly related to that of the business.
  • Investment cash flows (FCI): It is the change in cash generated by the difference between cash inflows and outflows from the investment.
  • Financial Cash Flow (FCF): the change in cash derived from the financing transactions of the company (mainly increase and decrease in debt)
  • Free Cash Flow (FCL): is the box or cash that remains available to the entrepreneur


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