In a company, cash flow is the amount of money coming in and going out. The company receives revenue from sales and spends it on expenses. Other sources of income include interest, investments, royalties, and licensing agreements, and selling products on credit, expecting to receive cash owed at a later date.
Financial reporting's most important objective is to determine the amounts, timing, and uncertainty of cash flows, as well as where they originate and where they go. Financial performance, liquidity, and flexibility are all determined by this measure
Cash flow that is positive means a company's liquid assets are increasing, allowing it to cover obligations, reinvest in its business, return money to shareholders, pay expenses, and protect against future challenges. Profitable investments can be made by companies with strong financial flexibility. Moreover, they are less likely to be affected by financial distress in downturns.
Analyzing cash flows is possible with a cash flow statement, an annual financial statement that summarizes a company's sources and use of cash over time. This information is used by corporate management, analysts, and investors to determine a company's ability to pay its debts and manage its operating expenses. Along with the balance sheet and income statement, the cash flow statement is one of the most important financial statements issued by a company.