What is cash flow?

Cash flow corresponds to the cash available to the company. Cash in (money coming in) comes from commercial activity and cash out (money going out) is made up of all business expenses.

Cash flow allows you to calculate available cash by taking into account real money transfers and not accounting elements such as depreciation.

What is cash flow used for?

Knowing the cash flow of a company can be an indicator of solvency indicating whether the company has debts or whether it is able to self-finance. It is an essential indicator used in the management of a company, it is often associated with the Self-financing Capacity but they should not be confused because the calculations are completely different.

How to calculate Cash flow?

Cash flow is made up of three main flow categories:

Cash flow from operating activities

Cash flow from operating activities includes all revenues and expenses related to the day-to-day activity of a business. There is also the Gross Operating Surplus which allows us to analyze the economic profitability generated by a company.

Cash flow from investing activities

Cash flows from investing activities are flows linked to the acquisition of equity interests by a company in other companies. This mainly concerns the acquisition and transfer of shares.

Cash flow from financing activities

Cash flows from financing activities are the resources that allow the company to obtain funds. We will find for example: obtaining a loan, grant, etc.

What are the different categories of Cash flow?

Cash Flow From Operations

Cash flow from operations helps a company optimize its operating cycle.

Cash Flow from Operations = Net income + Allocations to depreciation and provisions – Reversals of depreciation and provisions – Capital gains on the sale of assets + Capital losses on the sale of assets + or – Change in capital requirements bearing

Free Cash Flow

Free cash flow takes into account investments and disposals of fixed assets, it corresponds to available cash flow.

Free Cash Flow = Gross Operating Surplus – Tax on operating income + or – Change in working capital requirement – Investments + Disposal of fixed assets

or

Free Cash Flow = Cash flow from operations – investments net of divestments

Cash Flow to Equity

Cash flow to equity allows you to present the equity of a company.

Cash Flow to Equity = Free cash flow – Financial costs + Financial products + or – Change in bank and financial debt