Cash Flow

Table of contents

Penta - Your fully digital business account

Bank from the comfort of your home. With a business account that goes everywhere you do.

Understanding cash flow means understanding how money moves in and out of professional organisations and individuals. Cash flow is heavily affected by all business decisions and must be taken into account all the time. 

In this wiki, readers will learn all about cash flow: what it is, how it skews negative or positive, and what are the different types of cash flow

Cash flow in a nutshell

  • Cash flow is the money which flows in and out of businesses
  • It can be classed as positive or negative, indicating the increase or decrease in cash flow at the time
  • The different types of cash flow help to understand what is directing and influencing the cash flow in certain areas
  • Operating cash flow demonstrates the cash flow lost and gained in the everyday operations of the business
  • Financing cash flow is the money funding the company and its capital
  • Investing cash flow is affected by the various investments the company is involved with and can offer a deceptive negative reading of the company’s cash flow state

What is cash flow?

As the lifeblood of businesses, money constantly flows in and out of businesses. Interest rates, expenditures, royalties, credit, and many other business activities cause money to either accumulate within the company or individual, or travel to other places. This is cash flow.

Understanding cash flow is a massive part of financial analysis. The amounts and periods of time in which cash flow increases or slows down must be analysed for what they might reveal about the business at that time, eventually contributing to a picture of that business’s overall financial performance.

Positive and negative cash flow

Cash flow is read as either negative or positive. Positive cash flow is an indication that the value of the company’s assets are increasing, whereas negative cash flow indicates the opposite. Positive cash flow is likely to open up the business to expansion, provide more choice in future decisions, and increase the potential of the investment portfolio. Negative cash flow may lead to liquidation of assets in order to pay off debts, internal restructuring, and downsizing.  

Types of cash flow

Beyond positive and negative, there are types of cash flow which indicate the directors of the flow of cash—in other words, what is instigating and shaping the cash flow in that particular area. 

Operating cash flow

When money flows in and out directly due to goods production and sales, money is spent to enable the operations that allow this to happen. This is operating cash flow or cash flow from operations (CFO). 

A close look at an entity’s operating cash flow will give an indication of whether it is making enough money to cover its bills and operating expenses. Changes may have to be made to do with office location, production goods, and staff in order to correct the operating cash flow to a more positive one. 

Payment collection from customers is an example of potentially negative operating cash flow. Card readers with limited capabilities or online stores with a lack of payment options may deter customers and affect the operating cash flow, calling for a change in payment collection operations. 

Financing cash flow

Cash flows from financing (CFF) demonstrate the money that flows through the entity and is used to fund the entity and its capital. Investors will look at a company’s financing cash flow to determine its financial strength at a given time. 

Investors can develop a fairly clear picture of a company because financing cash flow includes the transactions that involve issuing debt, equity, and dividends. So, the company’s on-time payments and accumulation of debt are measured over a period of time, illustrating the stability of the cash flow.  

Investing cash flow

Cash flow from investing (CFI) will indicate the money gained and lost from the various investments in which the entity is involved. These investments range from purchasing physical assets such as real estate or vehicles for business trips, to investments from venture capital or angel investors.

Sometimes an analysis of an entity’s investing cash flow may lead the analyst to believe the entity has negative cash flow. However, the case may be that a great deal of money is being invested into the long term financial health of the company.


Start banking within 48 hours

No hidden fees • Cancel anytime
Back to top