Advantaages of cash flow to business


The success of any business body totally rests on its ability to accurately generate, comprehend and analyze all its financial statements which helps in understanding success and the business’ financial state. Free Cash Flow is a degree of financial performance calculated as operating cash such as sales revenue minus capital expenses such as bills and wages. Free cash flow (FCF) indicates the cash that a company is able to generate after setting aside the money required for asset base maintenance and expansion.

Cash is the liquid asset of a business such money in hand, petty cash, account balance available in bank, customer checks, and marketable commodities. It may also include the unutilized portion of an overdraft facility or line of credit.

Free cash flow is has many advantages to businesses since it allows a company to pursue prospects that will enhance shareholder value. Without cash, it’s tough to develop new products, order products, pay dividends and decrease debt among many other things

Capital Expenditures are also netted from free cash flow .These are payments which are made to obtain property and equipment, that have a useful life expectancy greater than the period stated. Maintenances and renovations to property and equipment that have long life are also capitalized. Depreciating assets are usually valued on the books at a reduced amount of deprecation method. The depreciation expense of the asset should match its useful life or usage. This helps in reducing the amount available to pay the dividends, reduce debt or repurchase share