cash flow

noun

|Updated on: 14 Aug 2018

Definition of cash flow

1 : a measure of an organization's liquidity that usually consists of net income after taxes plus noncash charges against income

2 : a flow of cash; especially : one that provides solvency

See cash flow defined for English-language learners

Examples of cash flow in a Sentence

We were able to maintain a steady cash flow.
The company is looking at new ways to generate cash flow.

Recent Examples of cash flow from the Web

Home rentals can be a great way for locals to tap into the cash flowing out of events like the World Cup, but many hosts are giving these platforms a spin for the first time.

— megan spurrell, Condé Nast Traveler, "5 Lessons Learned at the Russia World Cup," 27 June 2018
The district said the increased cash flow will help cover transportation costs, teacher recruitment and retention, an expansion of 1:1 technology initiatives and school safety programs.

— arika herron, Indianapolis Star, "Indiana primary voters say 'yes' to property tax hikes for Avon, Warren Twp. schools," 8 May 2018
Meanwhile, Tesla Chief Executive Elon Musk has publicly trumpeted his intention for the money-burning company to report positive profits and cash flows in the third and fourth quarters this year.

— russ mitchell, latimes.com, "Tesla drops reservation system, opens Model 3 orders to anybody," 10 July 2018
The company badly needs cash from the compact cars to deliver on CEO Elon Musk’s promise to post a net profit and positive cash flow in the third and fourth quarters.

— BostonGlobe.com, "No more plastic straws in Seattle," 2 July 2018
The company badly needs cash from the compact cars to deliver on CEO Elon Musk’s promise to post a net profit and positive cash flow in the third and fourth quarters.

— Washington Post, "Tesla makes 5,000 Model 3s per week, but can it continue?," 2 July 2018
The company badly needs cash from the compact cars to deliver on CEO Elon Musk’s promise to post a net profit and positive cash flow later this year.

— tom krisher, The Seattle Times, "Tesla makes 5,000 Model 3s per week, but can it continue?," 2 July 2018
Those microfinance loans, based on character and cash flow rather than bankable balance sheets, according to Riley, often involved the group with small business owners in the food and beverage industry.

— graydon megan, chicagotribune.com, "Robin Lee Greiner, who combined social justice and business to help entrepreneurs, dies at 53," 28 June 2018
Some Rider and Westminster professors have questioned Kaiwen’s credentials, citing the company’s high debt and negative cash flow.

— david w. chen, New York Times, "Rider Reaches Deal to Sell Westminster Choir College to Chinese Firm," 21 June 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'cash flow.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of cash flow

1954

in the meaning defined at sense 1

See Words from the same year

NEW! Time Traveler

Financial Definition of CASH FLOW

cash flow

noun

What It Is

Cash flow is simply the cash expected to be generated by an investment, asset or business.

How It Works

As an investor, you buy a dividend-paying stock. You purchase the stock for $10 and the company pays you a $0.50 dividend each year. $0.50 is cash flow to you. You have valued the stock at $10 based on the stream of annual cash flows you receive each year. If the dividend drops to $0.25, the stock will be worth less to you, and if the dividend increases to $0.75, the stock will be worth more.

On a company level, assume a business had a good year and was able to increase the amount of cash flow it generated. It made more than it paid out. The company can either keep the cash to reinvest in future business prospects, or it can distribute the cash to its investors. Anyone who wants to put a price on the company as a whole will see the cash flow it generates and assign a value based on those cash flows.

A Cash Flow Statement is required to be filed with the SEC by every publicly-traded company. By examining it, an investor can track the sources of cash and the uses of cash throughout the covered time period.

Why It Matters

Cash flow should be the #1 priority for every investor. Any asset should eventually generate cash to pay back the capital that the investor has invested.

The value of any asset can be determined in three steps: 1) Estimate the future cash flows the asset will generate for you; 2) Pick an appropriate discount rate to account for the risk you're assuming by investing in the asset; and 3) Calculate the present value of the cash flows from #1 by discounting them to today's dollars using #2.

It is important to note that having temporary negative cash flow is not always a bad thing. If a company is spending more cash than it earns because it is building a more efficient manufacturing plant, for example, the investment should pay off later when the plant generates products that are turned into cash. On the other hand, if a company has negative cash flow because it's overpaid for acquisitions or made other poor investments, then the long-term benefits may never materialize.

Source: Investing Answers