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Cash Flow

Financial Dictionary -> Investing -> Cash Flow

Cash flow, as it relates to a business, is the measurement of the amount of cash that is received by the business and paid out by it during a definite period of time. It may be related to a specific project as well. Cash flow can also be measured for an individual to determine his net worth or to regulate his incoming and outgoing cash.

When related to a business, cash flow can be used to determine the rate of return, the profitability of the company, the value of the business itself or of a particular project. Cash flow can also show the increasing or decreasing income of a business. It's often used by business analysts to evaluate the growth of a business.

When related to an individual, cash flow can be used to create a budget or to determine the need to spend more or spend less, to earn more or if financial stability can be maintained on less income. Cash flow is especially important if an individual has experienced a significant increase or decrease in income.

A simple example of a positive cash flow is shown below:

Monthly income = $3000
Monthly expenses = $2500
Positive Cash Flow = $500

A simple example of a negative cash flow would be:

Monthly income = $3000
Monthly expenses = $3200
Negative Cash Flow = -$200

Of course, if you're interested in calculating your cash flow for your personal financial portfolio or for your business, it will be more complicated than that. Itemizing is key to understanding why your financial picture shows a positive or negative cash flow. In order to determine whether you are coming out on the positive side, you may find that a cash flow calculator comes in handy. It will help you to categorize your expenses versus your income and show if you are making more money than you spend or visa-versa.
Analyzing the cash flow of your business or personal finances will show any problems that may not be evident by other financial statements. It's a way of keeping tabs on your revenue stream, whether by financing, operations, investing, donations, gifts, income or expenses.