Cash-flow means directly translated "cash flow" and is used to describe how money moves in and out of a company in a given period. It is therefore the company's actual liquidity movement – how much cash comes in from operations, investments and financing, and how much goes out for payments, expenses and installments.
What does cash flow show?
Cash flow does not just show whether a company has a profit on paper, but whether it actually has money available to pay its bills, invest and pay salaries. It is therefore a key figure when assessing a company's liquidity and ability to survive in the short term.
Typer af cash-flow
- Operating cash flow – cash flow from the company's core activities, e.g. sale of goods and payment of suppliers.
- Investment cash flow – cash flows linked to the purchase or sale of assets, machinery, property or financial investments.
- Financing cash flow – cash flows from raising or repaying loans, dividend payments or deposits from owners.
Why is cash flow important?
Even a profitable company can go bankrupt if it does not manage its cash flow. A positive cash flow means that more money comes in than goes out, which gives the company freedom of action. A negative cash flow, on the other hand, can be a danger signal if it continues over a long period of time.
Example
A company sells for DKK 500,000 on credit in January, but does not receive payment until March. The income statement shows a profit, but in January there are no liquid funds to pay bills. The cash flow in January is therefore negative, even though it is a sale.
Connection to other key figures
Cash flow is closely related to key figures such as afkastningsgrad, working capital and bruttofortjeneste, but stands out by focusing on actual cash movements rather than accounting results.