Other attributes
When calculating cash flow, both the profits generated by any of the company's activities and all of its costs are taken into account.
Usually cash flow is calculated for the past financial year, but in some cases, especially in the early stages of the company's launch, it can be calculated quarterly or as needed, for example, when a project cannot even reach self-sufficiency after the planned period for this. Cash flow allows for both long-term and short-term development strategies.
️Cash flow is a "scalable" indicator, as it can be used as one of the indicators of profitability not only of the company as a whole, but also of a separate division, an entire business area or,conversely ,of a separate project or even a product.
Data on cash flow is of particular value to investors, because the document allows you to see how much of the total amount of funds remained at the disposal of the company, and which went to cover expenses.
Based on this, a distinction is made between positive cash flow (showing the inflow of money) and negative cash flow (showing the outflow of money). Accordingly, based on this data, investors can determine how profitable it is to invest in such a company.
Positive cash flow is the funds that flow into the company, i.e., the inflow of money into the company.
The following items of income form a positive cash flow:
Revenue from the sale of goods;
Revenues from the provision of services;
A portion of the profits earned if the company participates in a common business with other businesses;
Dividends and interest payments;
Investor contributions;
Gratuities from charitable organizations;
Differences from currency exchange rates.
Negative cash flow is the money spent by a business to cover various costs and expenses, i.e., the outflow of money from the company.
The following types of payments form the negative cash flow:
Cost of production;
Research;
Improvement of working conditions;
Household expenses;
Taxes.
Net cash flow is the difference between the positive and negative cash flow, i.e. between the flow of funds into the company and the necessary expenditures. Net cash flow is one of the most important indicators, because it shows the level of the company's well-being and determines the interest of investors in it.
Net cash flow allows investors to determine how profitable an investment in a particular company is:
If cash flow is above zero, we can talk about investment attractiveness;
If cash flow is below or equal to zero, investments in this company are considered high-risk.
