The overall change in the cash position of a company for a particular period is defined as the Cash Flow which is an important parameter for MBA Professionals. If the cash taken is more than the outgoing cash the cash flow is said to be positive. If the outflow of cash is more compared to the inflow then the cash flow is considered to be negative. Through a proper examination of the cash flow financial health of a company can be determined.
Having cash in the company makes a stable position among buyers compared to competitors. At times it is essential to borrow money from banks and other financial institutions, but having cash can make the payment more secure and foreclosure of loans will be easy. Cash on hand is different from Cash flow and the latter controls the ability to generate cash when needed.
Through borrowing money for buying land equipment and inventory cash is used which will be generated later as profits. So it is essential to have a positive cash flow in order to pay off the debts. For this purpose, most companies keep long-term as well as short-term loans for making an adjustment to the cash flow.
Having stronger cash flow helps companies to build the infrastructure needed for the growth. This can also help in making renovations and purchasing assets that are needed for the development of the company. Having excess cash helps the company to plan things in a positive way.