The Perils Of Not Understanding Cash Flow

OVERVIEW – Information on cash flow and business financing in the Canadian landscape

Cash Flow
. We find that the term, or concept is widely misunderstood – having different meanings to different parties.

There are at least 7, if not more, methods in which the term is utilized in a number of areas of finance.

First of all the term is of course just a general term used in finance literature and textbooks relating to investments, etc.

When we see a company financial reports in the press there are often references to cash flow in the financial reports of the firm.

Getting even more specific, there are three parts to any financial statement, the balance sheet, the income statement, and the Cash flow statement. In older times this cash flow statement was called the Sources and Uses statement – simply indicating where a company got the money, and where they spent the money.

Some financial analysts refer to a company’s ‘ funds statement ‘ and designate the total funds provided by operations as ‘ cash flow ‘.

Confused? We’re not there yet. Financial managers and business owners use various types of analysis when making long term investments for the company. They use sophisticated financial analysis known as rate of return, payback analysis, and, guess what ‘ discounted cash flow ‘ analysis.

When a business owner is planning he will often prepare, and refer to, his ‘ cash flow ‘ budgeting.

And finally, business owners and financial mangers refer to; cash flow controls as they monitor the flow of funds and the control of those funds inside any company, small or large.

What becomes clear is that ‘ cash flow ‘ has become somewhat of a ‘ catch all ‘ wording and is somewhat confusing as more often than not it does not reference actual ‘ cash ‘ on hand, or even the flow!!

Most financial people would probably agree the purest form of ‘ cash flow ‘ is in fact one of the items we have mentioned above – that is to say its the cash referred to in the company’s CASH FLOW STATEMENT – we referred to it as one of the three pillars of any financial statement . The common calculation of this number is the net income of the company, plus the depreciation, which was not an actual cash outlay.

In summary, we have seen that the term cash flow means a lot of different things to different people – Business owners, and financial managers should know what method of cash flow they are utilizing, its uses, and how it will be interpreted by lenders, financial analysts, shareholders, etc.
Cash flow financing itself is achieved in many ways – it can be asset monetization , or working capital term loans.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your cash flow needs.

And yes, you are forgiven for misunderstanding the term!

Author: Stan Prokop – founder of 7 Park Avenue Financial

Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset based financing. In business 10 years – has completed in excess of 90 Million $$ of financing for Canadian corporations. Core competencies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details:

7 Park Avenue Financial = Sale Leaseback Financing


7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 302 4171
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