Question

What is the cash flow in finance and what is the special type of that?  

Answer 1

Cash Flow is the increase or decrease in the amount of money a business has. This term is used to describe the amount of cash that is generated or consumed in a given time period. In other words, cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business.

Positive cash flow means that a firm's liquid assets are increasing. It’s important to remember that cash flow differs from profit.

Cash Flow is useful in operating a business as well as in performing financial analysis. Some of the uses involve the calculation of-

• Net Present Value
• Internal Rate of Return
• Liquidity
• Cash Conversion Ratio
• Dividend Payments

So in finance, in order to calculate the cash flows, we make the cash flow statement. A cash flow statement is a financial statement that presents total data. Including cash inflows a business gains from its continuing progress and external financing sources, as well as all cash outflows. In other words, a cash flow statement is a financial statement that estimates the cash produced or used by a firm in a presented time.

The Main Objectives Are:

• To provide information about cash inflows and outflows from operating, investing, and financing activities.
• To determine net changes in cash and cash equivalents.

Cash flows are classified as operating, investing, or financing activities, depending on the nature of the transaction.

• Operating activities include cash activities related to net income. For example, cash generated from the sale of goods and cash paid for merchandise comes under operating activities.
• Investing activities include cash activities related to noncurrent assets. It includes long-term investments,  property, plant, and equipment.
• Financing activities include cash activities related to noncurrent liabilities and owners’ equity.

As such, there is no special type of cash flow but there can be some special items that form part of cash flow-

• Extraordinary Items
• Interest and Dividends
• Income-Tax
• Non-Cash Transactions