Cash flow is determined as the net cash or cash equivalents that come in and out of a company. Cash received by the company is called inflow and cash spent by it is called outflow. The company is said to have a positive cash flow if the inflow is greater than the outflow.
Positive cash flow adds value to the shareholders. Long-term free cash flow (FCF) is the cash a company makes after deducting expenses on capital. The potential a company has in creating positive cash flow and more importantly FCF determines how profitable it is for shareholders to invest in the company.
Moreover, a strong positive cash flow allows room for investment in the company without borrowing credit, pay off debts, and save money for future needs. All the inflows and outflows are recorded in a financial statement called Cash Flow statement.
