Business Basics: Understanding Cash Flow

If you're managing a company or a large project, understanding cash flow is critical. Poor cash flow can be a quick route to disaster, even for businesses experiencing a real boom, because being busy doesn't pay the bills, cash on hand does. 

This video looks at the cash flow statement, which is considered one of the key financial statements. It summarizes a company’s sources and uses of cash and the change in their cash balance over a specified time period, usually a calendar quarter or a full year. It reviews sources and uses of cash in the three major sections of the statement — operating, investing and financing activities — and explains how they contribute to the total change in cash held by a company.

The concept of the bridge from book earnings to cash flow is also discussed. For a real-life example, a view of an actual cash flow statement from a US chemical company is given. 

If you’d like to know more about tracking and assessing a company or project's financial health, you may also want to check out the AIChE Academy course Cash Flow Principles for Chemical Engineers.