Importance of Cash Flow

Cash flow is a basic concept when it comes to finances and it refers to the difference between cash coming in minus cash going out in an organization or in a person's account physical. Certainly the cash flow may vary according to different periods and it is in these circumstances where it is possible to look for alternative sources of financing. It is important to mention that there is an important difference between what is considered profitability and what is considered cash flow, being the first the difference between earnings minus expenses, while the cash flow It only refers to cash.

The relevance of cash flow is the fact of accounting for the liquidity of the company, understanding liquidity as the ability to face the obligations existing in the short term. In this way, a company with good cash flow you will have a better chance of being covered in regards to your near-time needs; on the contrary, a company with liquidity difficulties may fail in this regard. He study of the cash flow

It is a fundamental tool to analyze the situation of an organization and from this analysis make decisions. It is significant to point out that there are institutions such as banks that can go bankrupt due to a liquidity problem.

On a personal level, it is also important to take note of the cash flow that has. In this sense, it is a fundamental aspect to consider with regard to personal finance. He cash flow It will therefore have to do with our ordinary cash inflows and our ordinary outflows. There is a large number of people in the world with financial problems just for not having this basic operation covered.

As we can see, the cash flow It must be especially taken into account when observing the capacity of a company with regard to its obligations. On the other hand, although there is a significant difference between cash flow and profitability, it is also true that it is much easier to generate this last situation if you always have a cash flow positive. This situation means that the aforementioned variables are especially put under the magnifying glass by investors, who require having detailed information on the possibilities of inflow and outflow of money that an organization has.