The Importance of the Concept of Cash Flow

Assignment The importance of the concept of exchange-flow for the business pay Definition Cash flow is the movement of money into or place of a business, an account or an cloakment. Norm totallyy, when the money inflow is greater than the cash outflow it is a sign of a good financial built in bed because cash flow is essential for the survival of a business or even to any individual financial condition. If the ships company can stick out its obligations and advance a rose-cheeked inflow of cash it has a healthy situation and the management of the company can invest most of its sequence in developing the company.There argon 3 types of cash-flows Operating cash-flows, which is the money reli fitted or spent as a result of a companys normal business activities. Investment cash-flows, which is the money trustworthy or spent through investing activities and thirdly the financial endorseing cash-flows, which is the cash received through debt or paid out as debt repayments. E x generous hypothecate that you run a shoe factory. Having cash is necessary for your business to flow. If you entertain cash you can pay your suppliers, your employees and yourself on time and so keep the business flow.Therefore if you, as an individual, receive your pay check, you can pay for all your expenses (e. g. housing, food, utilities, insurance, etc). Here we are speaking about operational cash-flow. A nonher musical mode of creating cash is if you opt for purchasing and selling assets. This is normally a recollective term issue that can help your business grow and readiness lead to a net worth increase. This is called investment cash-flow. There are companies that are specialized in this area that manage funds that invest and divest in property.Finally, a third option you have is financing cash-flows. This includes any cash which comes from loans or other types of other debt that allow you to finance your cash flow. It is also used to finance the down payments made of debts. evidence Based on the above, one understands the importance of managing carefully the cash-flow and also having mental ability to meet emergency situations in order to be protected from out of the blue(predicate) circumstances, be it in a business or personally.To be able to run a company in a healthy expressive style it is important to have a good and open relationship with your banks and proficient lines of credit for certain times of the year when there is a defy in the cash inflows and also when there is a specific probability that requires cash. Companies that manage their cash flow in a positive government agency have a much stronger possibility of being successful. An example of an unhoped situation, and for which many are not normally prepared, is the sudden downturn in an economy just want what has happened in Portugal in the past three years.The factors which have had the biggest impact in the financial viability of companies are the inflation locate a nd above all, the restrictions on access to cash (e. g. loans). If a business is not able to manage its cash-flow carefully and is not capable of setting diversion emergency reserves (access to loans), then in a situation like today it will not be able to finance its cash flows and might enter into default. In some cases more than the economic capacity of a company it is its financial situation that might lead to a bankruptcy.We can then say that having cash is crucial for an entity to survive because companies with ample cash on hand can invest the cash back into the business and so generate more cash and profit. An old precept When the going gets tough, Cash is King Bibliography Marques, Manuel de Oliveira, A Importancia do Correcto Entendimento do Conceito de Cashflow parity a Analise e a Tomada de Decisoes Financeiras, Estudos de Economia, vol. IV, n. 4, Jul-Sept 1984. Monica Alvares Ribeiro N? 120499032