Cash Flow Concept
The term Cash-Flow, designates the balance between the capital input and output of a company during a certain period of time, able to calculate by a construction of a cash flow map. Usually, and for a matter of practical use, the flows measured are not strictly from the cash register, but rather the operating transactions that can be reflected in currency movements in a short time. In this way, the cash-flow concept begins to include the sales and the costs (excluding obviously the costs that don’t represent currency movements as for example the depreciations of facilities and equipments) and not the receipts and payments.
Cash-Flow Calculation Formula:
CF = R + D – Rx
In which CF is cash-flow, RL the net results, AA the depreciations and other adjustments of value made to assets and Rx the extraordinary results.
Sometimes, in the cash-flow calculation, are only used the exploration costs and the exploration profits. In this case, the result is the exploration cash-flow, which measures the company’s capacity to generate availabilities through its normal activity, this is, beyond the expunged of extraordinary events, is also expunged from the results of the investment and financing policies.
Due to the fact of providing a measure of the company’s capacity to release monetary means, cash-flow becomes an excellent indicator of the company’s self financing capacity, this is, its capacity to perform new investments without the need to appeal to external financing sources.
