Cash Flow, Cash & Debts

Just as the name implies, cash flow is the net amount of cash and other cash equivalents moving in and out of a business. In simple terms, this can be said to be the money that is flowing in and out of a business.

Just as the name implies, cash flow is the net amount of cash and other cash equivalents moving in and out of a business. In simple terms, this can be said to be the money that is flowing in and out of a business. The level of cash flow is not necessarily a good measure of performance of the company and vice versa.

•    Positive Cash Flow:  This indicates an increase in the company’s liquid assets or rather, if more money is coming in than going out.

•    Negative Cash Flow: This indicates that the company’s liquid assets are decreasing. More money is going out than coming in.

Meanwhile, let’s look at the definitions of cash and debt.

•    Cash: This can be referred to as a legal tender or coins that can be used to exchange goods, debt or services. Although cash typically refers to money in hand, the term can also be in form of bonds, marketable securities, checks and any other form of currency that can easily accessed and converted to physical cash.

•    Debt: This is usually an amount of money borrowed by a company or individual from another. They are usually incurred when a company wants to pay or purchase something they could not afford on normal circumstances. This arrangement makes for the borrowing party to pay back the money on an agreed date, usually with interest.