Definition of CASH-FLOW STATEMENT
A statement that shows where a companyâ€™s cash came from and where it went for a period of time, such as a year.
Cash Flow statement
A financial report that shows the movement in cash for a business during an accounting period.
A financial statement showing a firm's cash receipts and cash payments during a
A method of cash budgeting that is organized along the lines of the statement of cash flows.
One of the basic financial statements; it lists the cash inflows and cash outflows of the company, grouped into the categories of operating activities, financing activities, and investing activities. The statement of cash flows is prepared for a specified period of time.
One of the three primary financial statements
that a business includes in the periodic financial reports to its outside
shareowners and lenders. This financial statement summarizes the businessâ€™s
cash inflows and outflows for the period according to a threefold
classification: (1) cash flow from operating activities (cash flow from
profit), (2) cash flow from investing activities, and (3) cash flow from
financing activities. Frankly, the typical statement of cash flows is difficult
to read and decipher; it includes too many lines of information and
is fairly technical compared with the typical balance sheet and income
Part of the financial statements; it summarizes an entityâ€™s cash
inflows and outflows in relation to financing, operating, and investing activities.
Financial statement that shows the firmâ€™s cash receipts and cash payments over a period of time.
The Profit and Loss account, Balance Sheet and cash flow statement of a business.
Same as PV, but usually includes a subtraction for an initial cash outlay.
the value in todayâ€™s dollars of cash flows that occur in different time periods.
present value factor equal to the formula 1/(1 - r)n, where n is the number of years from the valuation date to the cash flow and r is the discount rate.
For business valuation, n should usually be midyear, i.e., n = 0.5, 1.5, . . .
The value of assets that can be converted into cash immediately, as reported by a company. Usually
includes bank accounts and marketable securities, such as government bonds and Banker's Acceptances. cash
equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.
A forecasted summary of a firm's expected cash inflows and cash outflows as well as its
expected cash and loan balances.
Purchase of a security and simultaneous sale of a future, with the balance being financed
with a loan or repo.
The value of assets that can be converted into cash immediately, as reported by a
company. Usually includes bank accounts and marketable securities, such as government bonds and Banker's
Acceptances. cash equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.
The actual physical commodity, as distinguished from a futures contract.
The length of time between a firm's purchase of inventory and the receipt of cash
from accounts receivable.
A company that pays out all earnings per share to stockholders as dividends. Or, a company or
division of a company that generates a steady and significant amount of free cash flow.
In general, the time between cash disbursement and cash collection. In net working capital
management, it can be thought of as the operating cycle less the accounts payable payment period.
Cash deficiency agreement
An agreement to invest cash in a project to the extent required to cover any cash
deficiency the project may experience.
The provision of some futures contracts that requires not delivery of underlying assets but
settlement according to the cash value of the asset.
An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.
A dividend paid in cash to a company's shareholders. The amount is normally based on
profitability and is taxable as income. A cash distribution may include capital gains and return of capital in
addition to the dividend.
A short-term security that is sufficiently liquid that it may be considered the financial
equivalent of cash.
In investments, it represents earnings before depreciation , amortization and non-cash charges.
Sometimes called cash earnings. cash flow from operations (called funds from operations ) by real estate and
other investment trusts is important because it indicates the ability to pay dividends.
Cash flow after interest and taxes
Net income plus depreciation.
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments,
preferred stock dividends, and rental payments) are covered by earnings before interest, taxes, rental
payments, and depreciation.
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
(disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing
securities), calculated as the sum of net income plus non-cash expenses that were deducted in calculating net
Cash flow matching
Also called dedicating a portfolio, this is an alternative to multiperiod immunization in
which the manager matches the maturity of each element in the liability stream, working backward from the
last liability to assure all required cash flows.
Cash flow per common share
cash flow from operations minus preferred stock dividends, divided by the
number of common shares outstanding.
Cash flow time-line
Line depicting the operating activities and cash flows for a firm over a particular period.
Cash-flow break-even point
The point below which the firm will need either to obtain additional financing
or to liquidate some of its assets to meet its fixed costs.
Cash management bill
Very short maturity bills that the Treasury occasionally sells because its cash
balances are down and it needs money for a few days.
Also called spot markets, these are markets that involve the immediate delivery of a security
Related: derivative markets.
A public equity issue that is sold to all interested investors.
The proportion of a firm's assets held as cash.
Cash settlement contracts
Futures contracts, such as stock index futures, that settle for cash, not involving
the delivery of the underlying.
A transaction where exchange is immediate, as contrasted to a forward contract, which
calls for future delivery of an asset at an agreed-upon price.
Temporary investments of currently excess cash in short-term, high-quality
investment media such as treasury bills and Banker's Acceptances.
An amount the insurance company will pay if the policyholder ends a whole life
Refers to a situation where a firm runs out of cash and cannot readily sell marketable securities.
An annual statement filed by a life insurance company in each state where it does
business in compliance with that state's regulations. The statement and supporting documents show, among
other things, the assets, liabilities, and surplus of the reporting company.
Discounted cash flow (DCF)
Future cash flows multiplied by discount factors to obtain present values.
Discretionary cash flow
cash flow that is available after the funding of all positive NPV capital investment
projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.
Equivalent annual cash flow
Annuity with the same net present value as the company's proposed investment.
Expected future cash flows
Projected future cash flows associated with an asset of decision.
Government bonds that are acceptable at par in payment of federal estate taxes when owned by
the decedent at the time of death.
An account for the investment credit to show all income statement benefits of the credit
in the year of acquisition, rather than spreading them over the life of the asset acquired.
The practice of reporting to shareholders using straight-line depreciation and
accelerated depreciation for tax purposes and "flowing through" the lower income taxes actually paid to the
financial statement prepared for shareholders.
Free cash flows
cash not required for operations or for reinvestment. Often defined as earnings before
interest (often obtained from operating income line on the income statement) less capital expenditures less the
change in working capital.
General cash offer
A public offering made to investors at large.
Income statement (statement of operations)
A statement showing the revenues, expenses, and income (the
difference between revenues and expenses) of a corporation over some period of time.
Incremental cash flows
Difference between the firm's cash flows with and without a project.
A firm's cash balance as reported in its financial statements. Also called book cash.
Net cash balance
Beginning cash balance plus cash receipts minus cash disbursements.
Nominal cash flow
A cash flow expressed in nominal terms if the actual dollars to be received or paid out are given.
A cost, such as depreciation, depletion, and amortization, that does not involve any cash outflow.
Notes to the financial statements
A detailed set of notes immediately following the financial statements in
an annual report that explain and expand on the information in the financial statements.
A statement published by an issuer of a new municipal security describing itself and the issue
Operating cash flow
Earnings before depreciation minus taxes. It measures the cash generated from
operations, not counting capital spending or working capital requirements.
Adjustment mechanism under the classical gold standard whereby
disturbances in the price level in one country would be wholly or partly offset by a countervailing flow of
specie (gold coins) that would act to equalize prices across countries and automatically bring international
payments back in balance.
Pro forma financial statements
Financial statements as adjusted to reflect a projected or planned transaction.
Pro forma statement
A financial statement showing the forecast or projected operating results and balance
sheet, as in pro forma income statements, balance sheets, and statements of cash flows.
An agreement by the loan purchaser to allow the monthly loan quota to be
delivered in batches.
Real cash flow
A cash flow is expressed in real terms if the current, or date 0, purchasing power of the cash
flow is given.
A legal document that is filed with the SEC to register securities for public offering.
Scheduled cash flows
The mortgage principal and interest payments due to be paid under the terms of the
mortgage not including possible prepayments.
Billing method in which the sales for a period such as a month (for which a customer also
receives invoices) are collected into a single statement and the customer must pay all of the invoices
represented on the statement.
Statement of Financial Accounting Standards No. 8
This is a currency translation standard previously in
use by U.S. accounting firms. See: statement of Accounting Standards No. 52.
Statement of Financial Accounting Standards No. 52
This is the currency translation standard currently
used by U.S. firms. It mandates the use of the current rate method. See: statement of Financial Accounting
Standards No. 8.
Symmetric cash matching
An extension of cash flow matching that allows for the short-term borrowing of
funds to satisfy a liability prior to the liability due date, resulting in a reduction in the cost of funding liabilities.
Target cash balance
Optimal amount of cash for a firm to hold, considering the trade-off between the
opportunity costs of holding too much cash and the trading costs of holding too little cash.
Stock that has fallen out of favor with investors; tends to have a low P/E (price to earnings ratio).
Wanted for cash
A statement displayed on market tickers indicating that a bidder will pay cash for same day
settlement of a block of a specified security.
CASH AND CASH EQUIVALENTS
The balance in a companyâ€™s checking account(s) plus short-term or temporary investments (sometimes called â€śmarketable securitiesâ€ť), which are highly liquid.
CASH FLOWS FROM FINANCING ACTIVITIES
A section on the cash-flow statement that shows how much cash a company raised by selling stocks or bonds this year and how much was paid out for cash dividends and other finance-related obligations.
CASH FLOWS FROM INVESTING ACTIVITIES
A section on the cashflow statement that shows how much cash came in and went out because of various investing activities like purchasing machinery.
CASH FLOWS FROM OPERATIONS
A section on the cash-flow Stockholdersâ€™ equity statement that shows how much cash came into a company and how much went out during the normal course of business.
An accounting statement that summarizes information about a company in the following format:
â€“ Cost of goods sold
â€“ Operating expenses
Earnings before income tax
â€“ Income tax
= Net income or (Net loss)
Formally called a â€śconsolidated earnings statement,â€ť it covers a period of time such as a quarter or a year.
A method of accounting in which profit is calculated as the difference between income
when it is received and expenses when they are paid.
The amount of cash expended.
Cash value added (CVA)
A method of investment appraisal that calculates the ratio of the net present value of an
investment to the initial capital investment.
Discounted cash flow (DCF)
A method of investment appraisal that discounts future cash flows to present value using a discount rate, which is the risk-adjusted cost of capital.
Amounts held in currency and coin (commonly referred to as petty cash) and amounts on deposit in financial institutions.
cash disbursement journal
A journal used to record the transactions that result in a credit to cash.
Cash receipts journal
A journal used to record the transactions that result in a debit to cash.
One of the basic financial statements; it lists the revenue and expense accounts of the company.
The Income statement is prepared for a given period of time.
The amount of currency and coin that a company keeps on hand to pay for small purchases and expenses.
Statement Retained Earnings
One of the basic financial statements; it takes the beginning balance of retained earnings and adds net income, then subtracts dividends. The statement of Retained Earnings is prepared for a specified period of time.
cash burn rate
A relatively recent term that refers to how fast a business
is using up its available cash, especially when its cash flow from operating
activities is negative instead of positive. This term most often refers
to a business struggling through its start-up or early phases that has not
yet generated enough cash inflow from sales to cover its cash outflow for
expenses (and perhaps never will).
An obvious but at the same time elusive term that refers to cash
inflows and outflows during a period. But the specific sources and uses
of cash flows are not clear in this general term. The statement of cash
flows, which is one of the three primary financial statements of a business,
classifies cash flows into three types: those from operating activities
(sales and expenses, or profit-making operations), those from
investing activities, and those from financing activities. Sometimes the
term cash flow is used as shorthand for cash flow from profit (i.e., cash
flow from operating activities).
cash flow from operating activities, or cash flow from profit
This equals the cash inflow from sales during the period minus the cash
outflow for expenses during the period. Keep in mind that to measure
net income, generally accepted accounting principles require the use of
accrual-basis accounting. Starting with the amount of accrual-basis net
income, adjustments are made for changes in accounts receivable,
inventories, prepaid expenses, and operating liabilitiesâ€”and depreciation
expense is added back (as well as any other noncash outlay
expense)â€”to arrive at cash flow from profit, which is formally labeled
cash flow from operating activities in the externally reported statement
of cash flows.
discounted cash flow (DCF)
Refers to a capital investment analysis technique
that discounts, or scales down, the future cash returns from an
investment based on the cost-of-capital rate for the business. In essence,
each future return is downsized to take into account the cost of capital
from the start of the investment until the future point in time when the
return is received. Present value (PV) is the amount resulting from discounting
the future returns. Present value is subtracted from the entry
cost of the investment to determine net present value (NPV). The net
present value is positive if the present value is more than the entry cost,
which signals that the investment would earn more than the cost-ofcapital
rate. If the entry cost is more than the present value, the net
present value is negative, which means that the investment would earn
less than the businessâ€™s cost-of-capital rate.
statement of financial condition
See balance sheet.
financial reports and statements
Financial means having to do with
money and economic wealth. statement means a formal presentation.
Financial reports are printed and a copy is sent to each owner and each
major lender of the business. Most public corporations make their financial
reports available on a web site, so all or part of the financial report
can be downloaded by anyone. Businesses prepare three primary financial
statements: the statement of financial condition, or balance sheet;
the statement of cash flows; and the income statement. These three key
financial statements constitute the core of the periodic financial reports
that are distributed outside a business to its shareowners and lenders.
Financial reports also include footnotes to the financial statements and
much other information. Financial statements are prepared according to
generally accepted accounting principles (GAAP), which are the authoritative
rules that govern the measurement of net income and the reporting
of profit-making activities, financial condition, and cash flows.
Internal financial statements, although based on the same profit
accounting methods, report more information to managers for decision
making and control. Sometimes, financial statements are called simply
free cash flow
Generally speaking, this term refers to cash flow from
profit (cash flow from operating activities, to use the more formal term).
The underlying idea is that a business is free to do what it wants with its
cash flow from profit. However, a business usually has many ongoing
commitments and demands on this cash flow, so it may not actually be
free to decide what do with this source of cash. Warning: This term is
not officially defined anywhere and different persons use the term to
mean different things. Pay particular attention to how an author or
speaker is using the term.
Financial statement that summarizes sales revenue
and expenses for a period and reports one or more profit lines for the
period. Itâ€™s one of the three primary financial statements of a business.
The bottom-line profit figure is labeled net income or net earnings by
most businesses. Externally reported income statements disclose less
information than do internal management profit reportsâ€”but both are
based on the same profit accounting principles and methods. Keep in
mind that profit is not known until accountants complete the recording
of sales revenue and expenses for the period (as well as determining any
extraordinary gains and losses that should be recorded in the period).
Profit measurement depends on the reliability of a businessâ€™s accounting
system and the choices of accounting methods by the business. Caution:
A business may engage in certain manipulations of its accounting methods,
and managers may intervene in the normal course of operations for
the purpose of improving the amount of profit recorded in the period,
which is called earnings management, income smoothing, cooking the
books, and other pejorative terms.
negative cash flow
The cash flow from the operating activities of a business
can be negative, which means that its cash balance decreased from
its sales and expense activities during the period. When a business is
operating at a loss instead of making a profit, its cash outflows for
expenses very likely may be more than its cash inflow from sales. Even
when a business makes a profit for the period, its cash inflow from sales
could be considerably less than the sales revenue recorded for the
period, thus causing a negative cash flow for the period. Caution: This
term also is used for certain types of investments in which the net cash
flow from all sources and uses is negative. For example, investors in
rental real estate properties often use the term to mean that the cash
inflow from rental income is less than all cash outflows during the
period, including payments on the mortgage loan on the property.
operating cash flow
See cash flow from operating activities.
profit and loss statement (P&L statement)
This is an alternative moniker
for an income statement or for an internal management profit report.
Actually, itâ€™s a misnomer because a business has either a profit or a loss
for a period. Accordingly, it should be profit or loss statement, but the
term has caught on and undoubtedly will continue to be profit and loss
stockholders' equity, statement of changes in
Although often considered
a financial statement, this is more in the nature of a supporting schedule
that summarizes in one place various changes in the ownersâ€™ equity
accounts of a business during the periodâ€”including the issuance and
retirement of capital stock shares, cash dividends, and other transactions
affecting ownersâ€™ equity. This statement (schedule) is very helpful
when a business has more than one class of stock shares outstanding
and when a variety of events occurred during the year that changed its
ownersâ€™ equity accounts.
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