![]() Net cash flow is closely tracked by the treasurer, who needs this information to predict the cash needs of a business, which he or she uses to either plan for investments having different maturity dates, or for the acquisition of additional debt. Net Cash Flow ReportingĪ summary of the cash flows of a business is formalized within the statement of cash flows, which is a required part of the financial statements under both the GAAP and IFRS accounting frameworks. ![]() This approach begins with the net profit or loss figure at the bottom of the income statement and then adds back all non-cash expenses, which typically include depreciation, amortization, and depletion. This appears at first to be the most direct method of deriving net cash flow, but the accounting transaction recording system does not aggregate or report information in this manner. Net cash flow can be derived through either of the methods noted below. This can be cash received from a gain on an investment, or cash issued to buy an investment instrument or purchase fixed assets. This is cash received through a debt agreement, or cash issued to pay off a debt, repurchase company shares, or pay out a dividend. This is cash both generated and used by the basic operations of a business, such as cash receipts from customers and expenditures for cost of goods sold and administrative expenses. Net cash flow is comprised of three forms of activities, which are noted below. Conversely, continuing negative net cash flow is the prime indicator of any number of operational or financing problems (though it could also mean that a business is growing rapidly and so requires more working capital than usual). If a company is consistently generating positive net cash flow over a long period of time, this is the best indicator of its viability. ![]() This concept is used to discern the short-term financial viability of a business, which is considered to be its ability to generate cash. Net cash flow is the amount of cash generated or lost over a specific period of time, usually over one or more reporting periods. ![]()
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