Hint of the Month - May 2025

What is Cash Flow in Financial Management?

 

 

Cash Flow is an important and basic concept in financial management. It plans and anticipates the incoming and outgoing flows of money within the scope under consideration. Cash flows are studied in order to determine liquidity at any point of time, so that business doesn't face uncovered liabilities. Cash flows also serve as an investment assessment tool, to determine how profitable is a certain investment, by understanding the upfront and ongoing investment and expenditures, and the expected rate of return and payback period of the investment. For this purpose, time value of money is a key concept, where both future value and present value of cash flows are calculated so that amounts of money earned or expended at different points of time are comparable. Cash flow statements are one type of main financial statements issued periodically by financial management of any entity to report financial activities, and it can address normal operational activities or long term investment activities.