Cash flow is the amount of money coming into and going out of a company’s accounts, as reported in earnings announcements. It can refer to a single project or the entire business.
Some traders use cash flow as a means of judging a business’s financial foundations. If there is a large amount of cash coming in, there is more available to reinvest in the business. Cash flow can be easier to compare between companies as it isn’t subject to accounting rules.
Cash flow isn’t necessarily a sign that a company is profitable, but does indicate its liquidity. Total cash flow is calculated by deducting the total costs and adding incomes over a period of time, to give the change in cash balance. There are many other types of cash flow, though, depending on which aspect of a business’s cash flow is being calculated.