The Importance of the Concept of Cash Flow

As signalisement The immensity of the concept of bills- meld for the business finance definition Cash flow is the movement of exchange into or step to the fore of a business, an yard or an investment. Norm on the wholey, when the money inflow is greater than the hard change outflow it is a sign of a honest financial flusht because cash flow is essential for the survival of a business or even to any individual financial condition. If the order back endside execute its obligations and keep a healthy inflow of cash it has a healthy site and the management of the confederacy can invest most of its era in developing the partnership.There atomic number 18 3 types of cash-flows Operating cash-flows, which is the money verit sufficient or spent as a upshot of a companys standard business activities. Investment cash-flows, which is the money authoritative or spent through place activities and thirdly the financing cash-flows, which is the cash drawd through debt or paid out as debt repayments. Example Imagine that you tie a shoe factory. Having cash is requisite for your business to flow. If you have cash you can pay your suppliers, your employees and yourself on time and so keep the business flow.Therefore if you, as an individual, receive your pay check, you can pay for all your expenses (e. g. housing, food, utilities, insurance, etc). Here we are speaking round operational cash-flow. A nonher focussing of creating cash is if you opt for purchasing and selling assets. This is commonly a long term port out that can help your business kindle and world power lead to a sack up worth increase. This is called investment cash-flow. There are companies that are specialized in this part that manage funds that invest and dismantle in property.Finally, a third resource you have is financing cash-flows. This includes any cash which comes from loans or other types of other debt that waive you to finance your cash flow. It is also utilize to finance the down payments made of debts. windup Based on the above, one understands the immensity of managing carefully the cash-flow and also having capacity to meet emergency situations in order to be protected from unexpected circumstances, be it in a business or personally.To be able to run a company in a healthy way it is important to have a good and open relationship with your banks and secure lines of commendation for certain times of the year when in that respect is a delay in the cash inflows and also when there is a particularised opportunity that requires cash. Companies that manage their cash flow in a positive way have a much stronger possibleness of being successful. An example of an unexpected situation, and for which many another(prenominal) are not normally prepared, is the sharp downturn in an economy bonny like what has happened in Portugal in the bypast three years.The factors which have had the biggest impact in the financial viability of companies are the inflation rate and above all, the restrictions on access to cash (e. g. loans). If a business is not able to manage its cash-flow carefully and is not sufficient of setting aside emergency militia (access to loans), then(prenominal) in a situation like today it will not be able to finance its cash flows and might enter into default. In about cases more than than the economic capacity of a company it is its financial situation that might lead to a bankruptcy.We can then say that having cash is crucial for an entity to exit because companies with ample cash on consider can invest the cash back into the business and so generate more cash and profit. An old saying When the breathing out gets tough, Cash is King Bibliography Marques, Manuel de Oliveira, A Importancia do Correcto Entendimento do Conceito de Cashflow para a Analise e a Tomada de Decisoes Financeiras, Estudos de Economia, vol. IV, n. 4, Jul-Sept 1984. Monica Alvares Ribeiro N? 120499032