Editing Cash flow (section)

==Cash flow analysis==
Cash flows are often transformed into measures that give information e.g. on a company's value and situation:

* to determine a project's [[Accounting rate of return|rate of return]] or value. The time of cash flows into and out of projects are used as inputs in financial models such as [[internal rate of return]] and [[net present value]].<ref>{{cite web | title = What Is the Difference Between NPV and IRR? | url = https://www.investopedia.com/ask/answers/05/npv-irr.asp | website = Investopedia | date = 30 November 2003 | access-date = 30 May 2025}}</ref>

* to determine problems with a business's [[Accounting liquidity|liquidity]]. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash even while profitable.<ref>{{cite web | title = Liquidity Crisis | url = https://www.investopedia.com/terms/l/liquidity-crisis.asp | website = Investopedia | access-date = 30 May 2025}}</ref>

* as an alternative measure of a business's [[profit (accounting)|profits]] when it is believed that [[accrual accounting]] concepts do not represent economic realities. For instance, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash). In such a case, the company may be deriving additional operating cash by issuing shares or raising additional debt finance.<ref>{{cite web | title = The Accruals-Cash Flow Relation and the Evaluation of Accrual Accounting | url = https://business.columbia.edu/sites/default/files-efs/imce-uploads/CEASA/Events%20Page/accruals-cash_flow_relation.pdf | website = Columbia Business School | access-date = 30 May 2025}}</ref>

* cash flow can be used to evaluate the 'quality' of income generated by [[accrual accounting]]. When net [[income]] is composed of large non-cash items it is considered low quality.<ref>{{cite web | title = Understanding the Cash Flow Statement | url = https://www.abc-amega.com/articles/understanding-the-cash-flow-statement/ | website = ABC-Amega | access-date = 30 May 2025}}</ref>

* to evaluate the risks within a financial product, e.g., matching cash requirements, evaluating default risk, re-investment requirements, etc.<ref>{{cite web | title = The Final Phase of LDI: Cash Flow Matching | url = https://www.westernasset.com/us/en/research/blog/the-final-phase-of-ldi-cash-flow-matching-2023-02-23.cfm | website = Western Asset Management | date = 23 February 2023 | access-date = 30 May 2025}}</ref>

Cash flow notion is based loosely on cash flow statement accounting standards. The term is flexible and can refer to time intervals spanning over past-future. It can refer to the total of all flows involved or a subset of those flows.<ref>{{cite web | title = IAS 7 — Statement of Cash Flows | url = https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows/ | website = IFRS Foundation | access-date = 30 May 2025}}</ref>

Within cash flow analysis, 3 types of cash flow are present and used for the cash flow statement: 
* Cash flow from operating activities - a measure of the cash generated by a company's regular business operations. Operating cash flow indicates whether a company can produce sufficient cash flow to cover current expenses and pay debts.
* Cash flow from investing activities - the amount of cash generated from investing activities such as purchasing physical assets, investments in securities, or the sale of securities or assets.
* Cash flow from financing activities - the net flows of cash that are used to fund the company. This includes transactions involving dividends, equity, and debt.<ref>{{cite web | title = Managing Government Cash | url = https://www.oecd.org/en/publications/managing-government-cash_7675eb58-en.html | website = OECD | access-date = 30 May 2025}}</ref>

In public finance and development economics, effective cash flow planning is also central to fiscal control, liquidity risk mitigation, and debt management.<ref>{{cite web | title = Cash Management – How Do Countries Perform Sound Practices? | url = https://documents1.worldbank.org/curated/en/403731603139041759/pdf/Cash-Management-How-do-Countries-Perform-Sound-Practices.pdf | website = World Bank | access-date = 30 May 2025}}</ref>