Cash flow: every definition you need to know

Ready to take control of your cash flow? This glossary has every definition you need to feel confident about your finances.

We've made it easy to learn with links to detailed posts for each term, letting you dive deeper into topics that catch your interest. Let's explore the essentials together and make managing cash flow a breeze!

O que é fluxo de caixa?

Cash flow refers to the net amount of cash and cash equivalents moving into and out of a business. Cash flow helps evaluate a company's liquidity, financial health, and overall performance. Positive cash flow indicates more money coming in than going out, while negative cash flow signifies the opposite.

Cash flow definitions

To help you expand your knowledge of cash flow, we’ve defined many of the most commonly used terms below.

Planejamento de fluxo de caixa

Cash flow planning aligns funding sources with capital requirements. Effective cash flow planning addresses both short- and long-term needs and typically forecasts financials three to six months ahead.

It's important to note that cash flow planning and cash flow forecasting are often used interchangeably to describe the process of managing liquidity.

Explore the intricacies of cash flow planning in our blog.

Cash inflows

Cash inflows refer to the money received by a company from its various activities, including operating, investing, and financing. These can come from sales revenue, investment returns, or funds obtained through financing efforts such as issuing debt or equity.

Cash outflows

Cash outflows refer to the money spent by a company on its various activities, including operating, investing, and financing. These expenditures can include costs such as purchasing inventory, acquiring long-term assets, repaying debt, or buying back equity.

Cash flow statement

A cash flow statement details changes in cash and cash equivalents. It identifies the sources of cash and describes how it was utilized over a specific period. These statements are crucial for reporting, internal decision-making, and forecasting, making reliable and accurate financial data essential.

Learn more about the importance of cash flow statements in our blog.

Cash flow software

Cash flow software collects and tracks all necessary data, compiling it into accurate, automatically updated forecasts. It streamlines the entire cash flow process, saving time for the Office of the CFO and enhancing operational efficiency by tracking every dollar without extra effort from the accounting team.

Discover the benefits of cash flow software in our blog.

Previsão de fluxo de caixa

Cash flow forecasting involves estimating your future operating cash flow based on projected financial events, such as purchasing new inventory or onboarding a large new client. These forecasts utilize existing cash flow data, often from previous planning sessions, combined with current financial information to predict financial stability over the coming months, quarters, or years.

Explore effective cash flow forecasting in our blog.

Operating cash flow

Operating cash flow (OCF) measures the cash generated from a company's core operating activities over a certain period. It includes cash inflows and outflows from daily operations, excluding income or expenses from non-core activities like investments or interest. OCF is also known as “cash from operating activities.”

Understand the importance of operating cash flow in our blog.

Free cash flow

Free cash flow (FCF) refers to the cash remaining after a company has covered its operating expenses and capital expenditures (CapEx). When a company has a surplus of free cash flow, its finance team can allocate these funds to activities that enhance shareholder value and expand business operations.

Learn how to better utilize your free cash flow in our blog.

Pro forma cash flow statement

A pro forma cash flow statement is a predictive report that utilizes available financial data to forecast a company’s expected cash flow. These statements outline anticipated future expenditures and investments. A pro forma cash flow statement can be prepared using either the direct or indirect method, depending on the goals, scope, and available financial data.

Find out how a pro forma cash flow statement can help you strategically plan your company's financial future in our blog.

Indirect cash flow method

The indirect cash flow method starts with net income and adjusts for non-cash transactions and changes in working capital. It does not use cash receipts, making it faster for handling large accounts since individual transactions don’t need to be listed.

Discover the benefits of the indirect cash flow method in our blog.

Direct cash flow method

The direct cash flow method records all cash transactions directly, combining inflows and outflows into a detailed statement. While labor-intensive, this approach provides clear insights into a company's cash flow.

Learn more about the direct cash flow method in our blog.

Unlevered free cash flow

Unlevered Free Cash Flow (UFCF), or “free cash flow to firm,” is the cash generated from operations before debts or interest payments. It reflects the cash produced purely from core activities, showing the company's ability to cover all financial obligations.

Dive deeper into unlevered free cash flow in our blog.

Levered free cash flow

Levered Free Cash Flow (LFCF), or “free cash flow to equity,” is the cash available to stakeholders after covering operating costs, reinvestments, and debt obligations. Management decides whether to reinvest these funds, buy back stocks, or issue dividends.

Find out more about levered free cash flow in our blog.

Cash flow yield

Cash flow yield measures the efficiency of converting revenue into cash flow. It evaluates how much cash a company generates relative to its net income, providing insight into its operational performance and financial health.

Cash conversion cycle

A cash conversion cycle measures the time (in days) it takes a company to convert cash spent on resources and inventory into profit from sales. It gauges operational efficiency, with a shorter cycle indicating better performance. To calculate this metric, you need data on days inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO).

Explore how to optimize your cash conversion cycle in our blog.

Days sales outstanding

Days sales outstanding (DSO) is a metric that measures the average number of days it takes for a company to collect payment after a sale. It indicates the efficiency of a company's credit and collection processes, with lower DSO reflecting quicker cash collection.

Check out our blog post for more details on days sales outstanding.

Days payable outstanding

Days payable outstanding (DPO) measures the average number of days a company takes to pay its suppliers after receiving an invoice. It reflects the company's efficiency in managing its payable obligations, with higher DPO indicating longer payment periods.

Read our blog for more insights on days payable outstanding.

Cash flow from investing activities

Cash flow from investing (CFI) pertains to the cash generated or expended through investment-related activities within a specific period. This can include cash flows from earned interest, the sale of investments, or the purchase of long-term assets such as property, plant, and equipment.

Discover how cash flow for investing activities affects your company’s financial performance.

Cash flow from financing activities

Cash flow from financing (CFF) refers to the cash utilized or generated through financing activities. These activities can include issuing and repaying debt, as well as issuing and buying back equity.

Explore how cash flow from financing activities shapes your company's financial strategy.

Cash flow from operating activities

Cash flow from operations (CFO), also known as operating cash flow, measures the cash a company generates and uses through its operating activities within a specific period. Operating cash flow excludes investment revenue, investment expenses, and long-term capital expenditures.

Learn how cash flow from operating activities can drive your business growth.

Conclusion: How to manage your cash flow

Armed with an understanding of key cash flow terms, you're now ready to streamline and modernize your cash flow management.

To see these concepts in action, watch our on-demand webinar: Unlock the Power of Precision in Your Cash Flow Management. Discover how Prophix One enables you to streamline planning, identify growth opportunities, and monitor performance with real-time dashboards.