Thread by @WanjiruNatasha_

We often hear cash flow is king in business but what really is cash flow? Thread🧵

Cash flow for beginners.

We will look at:
1)Definition
2)How it works
3) What it comprises of.
4) Importance
>>

Cash flow in simple terms is how money flows in and out of the business.

Example.
When a business(biz) buys an inventory cash is used(flows out), when a biz sells its products/services money flows in. When wages, utilities, salaries are paid money flows out. You get the idea.

Money received represents cash inflow and money spent represents cash outflow.

Cash flows is documented and analyzed on a financial document called cash flow statement.

Cash flow is based on 3 activities:
1) operating activities
2) investment activities
3)Financing activities

Operating activities includes manufacturing, purchasing, selling and distribution of goods and services. This is cash generated by a business' main activities.

Investing activities is the purchase that a business makes to improve its final production or cash spent to bring more money in(investing in other business ventures, securities or selling of securities) Eg. buying of new machine and equipments(capital assets).

Financing activities is how the company funds itself and its capital. These can be transaction from issuing debt, equity from shareholders and paying of dividends from stocks/shares to shareholders.

Importance
1) It is the true indicator of profitability in a company/business, it reps the cash a company generates after cost.
2) It assesses a company's liquidity, flexibility and overall financial performance/health.
3) You know where the money originated from & where it went

N/B:
Overall Positive cash flow is where the money coming is greater than the money going out, the reverse is true.

EXCEPT

A negative cash flow from investing might be an indicator that the company is redirecting cash to more long-term health activities such as Research &Dev.

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