Cash flow: Difference between revisions

*'''Asset cashflows''': When talking about a [[financial instrument]], its [[cashflows]] — usually plural — are the payment streams owed on that instrument: [[Principal]], [[interest]], [[dividend]]s, [[distribution]]s and so on. Of course, these payments come due over time and may be dependent on external factors<ref>For example: A floating rate obligation will depend on the published [[interest rate]] determined for each interest period; a fixed rate obligation is set at the beginning, and once set, doesn't depend on anything.</ref>

:Any asset cashflow is a series of payments due at defined points over a period of time. For example, once it has been advanced, a one-year loan of £10,000,000, bearing interest fixed at 10% per annum payable quarterly in arrear comprises the following payments:

:The total amount payable over the year is 11,000,000, but the value of that cash flow at any time — its “[[present value]]” — is somewhat less than that.

*'''Company cash flow''': When talking about a business, its “[[cash flow]]” — a singular, abstract noun — is the sum total of all its incomings, outgoings and bank balances. A company that is “[[cashflow positive]]”, over a given period, it takes in more money than it pays out. A company that is “[[cashflow negative]]” (also called, if big enough and filled with enough hot air, a “[[unicorn]]”) pays out more money in a given period than it takes in. If its financiers and stockholders are patient enough, — as Uber’s seem to be, for example — a company can stay [[cashflow negative]] longer than its [[short-seller]]s can stay solvent.  But being cashflow negative means having cash in the bank to meet the monthly shortfall. If you have to borrow cash to meet the shortfall, your monthly shortfall is sure to get bigger each month. If you don’t, you soon will have to, if you don’t sort it out. A company which is cashflow negative and doesn't have (and can’t raise) money to cover the shortfall, “cannot pay its [[debt]]s as they fall due” and is “[[Cashflow insolvency|cashflow insolvent]]”. Not good. A company whose assets are worth more than its liabilities (that, from a [[Balancesheet insolvency|balance-sheet perspective]] is solvent) can nonetheless be [[cashflow insolvent]]. [[Lehman Brothers]], for example.