An Essay on the Concept of Cash Flow

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AN ESSAY ON THE CONCEPT OF “CASH FLOW” Researched and prepared by Jeffrey C. Bado You may have heard the expression “Cash is King” if you have had the opportunity to sit and listen to successful business people. It may seem incredulous to you in this era of electronic transfer of money, Debit Cards, Credit Cards, electronic asset transfers, etc. that we would still be discussing cash. The purpose of this essay is to explain the concept of cash flow. Cash by definition is not just the in-hand possession of currency but, as related to financial jargon, comprises currency or currency equivalents that can be accessed immediately. Cash Flow is defined as the movement of “cash” funds in and out of a business. Cash Flow is to a business as blood flow is to the human body. The Bible says “the life is in the blood” and in business its health is surely in its Cash Flow. Assessing the “business health” of a company requires an accurate assessment of the business Cash Flow. This calculation requires an understanding of what is commonly called the Statement of Cash Flows. This statement comprises an examination of 3 systems: Cash Flow from Operating Activities, Cash Flow from Investing Activities, and Cash Flow from Financing Activities. Each system must be accurately evaluated for a true rendering of the “Cash Flow Health” of any business. Operating Activities (OA) are the funds that a business produces or consumes from the internal production of its business activity. These are the day-to-day expenses and revenues of a company. This is usually the key source of a company’s cash generation. Calculating OA will often include the adjusting of the net income for the increases or decreases to tangible and intangible working capital items (ie. operating assets and liabilities). Investing Activities (IA) are the funds that a business

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