1: cash flow definition
2: how it’s works
3: types of cash flow
4: cash flow varieties
Quick pick
The process of flow in money from inside and outside of the company business bank account or single properties is what is called cash flow.
Opening information:
Cash flow contains two words Cash and flow. which means cash is a collection of money and money is a banknote and banknotes are the Currency of every identified country.
Flow means the movement of one matter or material from one spot to another spot. This action of flow happens depending on the words with it.
Cash flow means a collection of money moving from one place to another is called cash flow.
This article contains information about what is cash flow in the stock market, how cash flow works, its types, and a final example for clear understanding.
1: cash flow definition
before 1987 all the publicly traded Companies could only submit the financial statement of profit and loss statement or income statement and balance sheet of the company.
Income statements are created to show the income of each company quarter and annual net income. The balance sheet created showed the assets and all the debts or liabilities of the company.
These two statements make the stock Investors determine and understand the company very deeply.
After the 1992 International Accounting Standard Board, which required the cash flow statement for all Companies instead of the changes of financial position statements.
The income statement only shows the income made from certain industries but the Investors won’t know does the income is received from the business account or not.
This makes the Investor confused that particular industries received the Net income for certain things or not.
Also even if the company paid a big debt and sold the assets of the company and shows the reports in the balance sheet and income sheet, the Investor won’t know whether the money is received in the business account or not.
That’s where the cash flow statement became very important for every Investor. This shows whether the cash was received inside the company or not and it shows does the cash was paid from the business account or not.
So the cash flow means the collection of money flows in and out of the company is called cash flow.
Recording this cash flow in and out of the company activities is called a cash flow statement. now let’s dig into how the cash flow works.
2: how it’s works
The flow of cash through the companies is Called cash flow if your house rents for $590 per month. It means $590 is the cash flow of the month for your rental house. Now let’s dig into how cash flow works in statements.
Let’s say Walmart ordered the 15,000 Coca-Cola from the Coca-Cola Company. The Coke Company distributed the total Coca-Cola to Walmart.
Now when some individuals purchase the coca cola they suddenly pay and get the Coke to drink.
But when one industries purchase any goods or services, they won’t pay suddenly because of huge purchases. They take 90 to 100 days to pay for the distributed industry.
Here when the coca cola distributed the 15,000 drinks, they suddenly recorded the 15,000 drinks as revenue in their income statement.
However, the cash flow statement of the coca cola only shows when the payments are made inside the company account from Walmart.
On the other hand, Walmart purchased 15,000 drinks from the Coca-Cola Company. They report the 15,000 drink purchase as an expense on their income statement.
However, the cash flow statement shows that money is not paid from Walmart. So the business bank account balance remains the same.
The cash flow statement only shows when the amount is paid to Coca-Cola drinks from the Walmart business account.
The primary activity of the cash flow statement is to track the cash flow activities of a certain business.
No matter what sales, revenue, or payments are recorded, the cash flow statement only shows when it’s happened in the business bank accounts. So now let’s have a look on what is the types of cash flow.
3: types of cash flow
When comes to cash flow types, there are a lot of varieties in cash flow but there are only two types.
1, in cash flow.
2, out cash flow.
Cash flow means when the company receives cash from outside activities then it is called in the flow of cash.
Out cash flow means when the company pays the money to other organizations or persons then it is called out outflow of cash. And so let’s dig into its varieties.
4: cash flow varieties
This cash inflow and outflow have many different varieties. The varieties are reasons.
This means cash received for the company because of selling any old assets any interest from any stocks, or any financial activities extra…
The same for “out cash flow” has many varieties which means paying any liabilities of the company using the profits, any interest payment for bonds holders, or any dividends payment for the shares holders extra…
There might be a lot of reasons with only two purposes inflow and outflow of cash.
Market rule: #100181
Cash flow is the market rule, but any distinct amount of cash flow doesn’t guarantee the success of the return anyway. Therefore you are completely responsible for any action you perform using the cash flow concept.
So If your investors are not comfortable or align investing with based on market rules please learn about how to regulate your investments under your control with the use of Rule investing.