- cash receipts minus cash disbursements from a given operation or asset for a given period. Cash flow and cash inflow are often used interchangeably.
- in capital budgeting, monetary value of the expected benefits and costs of a project. It may be in the form of cash savings in operating costs or the difference between additional dollars received and additional dollars paid out for a given period.
- cash basis net income. The procedures for converting an accrual basis net income amount to a cash basis net income figure are as follows:
Accrual basis net income
+ Non-cash charges such as depreciation
+ or – Changes in accounts receivable, inventory, prepaid expenses,
accounts payable, and accrued liabilities
= Cash basis net income
- cash available to an organization from its business operations and investments. A positive cash flow indicates net operating income is sufficient to cover expenses, while a negative cash flow means expenses are growing faster than revenues. Lenders, when making loans to a business, often look first at cash flow from operations, before collateral pledged by the borrower, as the primary source of loan repayment.
- flow of funds through a bank, an important measure of its overall liquidity or ability to meet customer demand for funds. It is usually summarized in a cash flow report indicating a bank’s sources of funds (mostly deposits) and uses of funds (mostly loans). See also cash position.
- the flow of principal and interest payments as borrowers pay down consumer and mortgage loans to investors holding mortgage-backed bonds and asset-backed securities.
Finance: analysis of all the changes that affect the cash account during an accounting period. Cash flow from operations is one factor in a breakdown, usually shown as sources of cash and uses of cash.
Investment: net income plus depreciation and other noncash charges. In this sense, it is synonymous with cash earnings. Investors focus on cash flow from operations because of their concern with a firm’s ability to pay dividends. See also cash budget.
Example for a real estate investment:
Cash flow is not the same as taxable income. Some items subtracted from cash flow to derive taxable income are money received from loans, depreciation, and amortization deductions. Some items that are added to cash flow to derive taxable income are loans retired and purchases of long-term assets. See also free cash flow, ebitda.
- in a larger financial sense, an analysis of all the changes that affect the cash account during an accounting period. The statement of cash flows included in annual reports analyzes all changes affecting cash in the categories of operations, investments, and financing. For example: net operating income is an increase; the purchase of a new building is a decrease; and the issuance of stock or bonds is an increase. When more cash comes in than goes out, we speak of a positive cash flow; the opposite is a negative cash flow. Companies with assets well in excess of liabilities may nevertheless go bankrupt because they cannot generate enough cash to meet current obligations.
- in investments, net income plus depreciation and other noncash charges. In this sense, it is synonymous with cash earnings, Investors focus on cash flow from operations because of their concern with a firm’s ability to pay dividends. See also cash budget.
periodic amounts available to an equity investor after deducting all periodic cash payments from rental income.
Example: Table 10.
|STATEMENT OF CASH FLOW|
|Potential gross income||$ 10,000|
|Less: Vacancy and collection allowance||– 1,000|
|Add: Miscellaneous income||+ 500|
|Effective gross income||$ 9,500|
|Less: Operating expenses||– 3,000|
|Less: Replacement reserve||– 500|
|Net operating income||$ 6,000|
|Less: Interest||– 4,000|
|Less: Principal payment||– 500|
|Cash Flow||$ 1,500|