Cash Flow Analysis: Benefits, Basics and How to do It

Cash flow is the sum of cash and cash equivalents that a business generates/spends. The company’s runway can be determined by how much cash it has on hand. The higher the cash burn rate and the more cash the business has, the more manoeuvrability it has and the more valuable it is.

Cash flow is not the same as profit. Cash flow refers to the Money that flows into your business. Profit, however, is what you have after subtracting your business expenses and overall revenue.

What is Cash Flow Analysis, and Why Does it Matter?

To determine liquidity and solvency, companies need to analyze cash flow. Each of these is listed on a company’s statement of cash flows.

Cash flow analysis allows businesses to compare line items in the three cash flow category cash flows to see where Money is coming into and going out. Can use this line to determine the current state of the company.

Depending upon the cash flow, not all Money is good. You can also spend your Money.

Key Takeaways

Cash flow analysis is a way to determine how much cash your business generated and used during a certain accounting period.

 It is vital to understand your cash sources and where your cash is going.

Even though a company may be profitable, it might still experience negative cash flows or lose Money.

Complementary metrics, such as free cash flow can provide valuable insights into a company’s finances.

Explained: Cash Flow Analysis

Cash flow is the sum of all cash received by a business over a given period. Cash flow is often broken down into cash flow from operating activities and cash flow from investing activities.

Although it is important to examine business profitability on the income statements, cash flow analysis gives vital information about its financial health. It will tell whether cash inflows come from sales, loans, investors, or both. Similar information is available about outflows. Businesses can tolerate short-term negative cash flow but not long-term.

Higher growth spending can lead to negative cash flows for newer businesses. This is okay as long as lenders and investors are willing to continue supporting the business. Cash flow from operations has to turn positive eventually for the business to continue as a going concern.

Cash flow analysis is a way to determine if a business has a healthy balance of cash from sales, borrowing, or other funding. This type of analysis might reveal unexpected issues or show healthy operating liquidity. However, you won’t know if it is right until you look at your cash flow statements or conduct a cash flow analysis.

It’sIt’s important to look beyond the basic cash flow statement. It can be useful to calculate alternative versions of cash flows. You can see operating cash flows better if you subtract interest payments from cash expenses and exclude non-cash cash expenses. Unlevered free flow shows you cash flow before financial obligations. However, levered free flow explains cash flow after considering all obligations.

Depending on your company’s size and financial situation and your financial goals and objectives, reviewing and tracking different cash flow forms could be useful for financial planning and preparations for future quarters, years, and even possible downturns in sales or economic conditions.

What’s the difference between operating cash flow and net Income?

Net Income vs operating cash flow: An overview

The financial statements offer a wealth of information on a company and its activities. Many investors and analysts are interested in a company’s Net Income and operating cash flows to see how it has used its cash. Net Income, also known by its acronym, the bottom line is what it stands for. It is the residual Income, or revenues, after deducting expenses (taxes) and costs of goods sold (COGS). Operating cash flow is the amount of cash generated through operations over a period.


  • Net Income is the total revenues and expenses (COGS), with fewer taxes and fees.
  • Operating cash flow, also known as revenues or cash from operations, is less than operating expenses.
  • Many analysts and investors prefer to use operating cash flow to measure a company’s financial health.
  • While net Income is an important indicator for analysts and investors, it doesn’t necessarily give a full picture of the company company’s growth.

Net Income

Net revenue means earned revenues less incurred costs, including taxes and costs for goods sold (COGS). It can be a final monthly or quarterly report or an annual report. While a net-income statement is useful for potential investors and creditors, it does not always reflect the company company’s actual development. For example, a company may have a higher monthly net than operating Income due to a significant asset sale. A lower quarterly net will follow.

Operating cash Flow

Total cash flow refers to the operative cash flow plus the operating capital. The difference between liabilities and assets is the net of working capital. The operative Cash Flow reports on inflows and outputs due to regular operations. It is the cash derived from revenues. The cash cycle is the best method to show operating cash flow. It converts accrual accounting-based revenue into cash.

Key differences between cashflow and net income

The cash flow and net earnings statements are often different because there is a time difference between the actual payments and the documented sales. If customers are invoiced to pay cash during the next period, it is possible to control the situation. If payments are delayed further, there will be a greater difference between net earnings and operative Cash flow statements. The Annual Report may show the same low total Income and cash flow if the trend does not change.


There are generally four types of financial statements in accounting: The balance sheet, the Income, the Cash flow statement, the fund flow and the cash flow statement. Let’s now get into the third.

In Financial Accounting, the cash flow statement refers to the change made in a company’s cash and equivalents during a given period. Fund flow has two meanings. The first is for accounting purposes, while the second serves investment purposes.


  • Statements of cash flow and funds for a company show two variables in a given time frame.
  • The cash flow record will track a company’s cash inflow and cash outflow (cash equivalents).
  • The fund’s flow tracks cash movements in and out of the company.
  • Both give investors and the market a snapshot of company performance periodically.
  • On the other hand, the fund flow statement is better suited for long-term financial planning.

Cash flow

Cash flow can be found on the company’s cash flow statement. One of the key statements for a company’s operations records the inflow or outflow of cash (or cash equivalent assets) during the financial year. It is required to be reported under generally recognized accounting principles.