Cash flow is very important in fundamental analysis because it shows the real money a company earns and spends. It helps investors understand if the company is financially healthy and can survive tough times. A company with strong cash flow can grow, pay off debts, and return money to shareholders. So, analyzing cash flow gives a clear picture of a company's actual performance.

What is Cash Flow in a Company?

Cash flow means the money coming in and going out of a business. It includes the money a company gets from selling products or services and the money it spends on things like salaries, rent, or buying equipment. It shows how much actual cash the company has to run its operations, invest, and grow.

Why is Cash Flow Important in Fundamental Analysis?

Cash flow is important because it shows the real financial strength of a company. Profits on paper can be adjusted or delayed, but cash flow is hard to fake. It helps investors see if a company can pay its bills, invest in growth, and survive during bad times. A company with strong cash flow is usually stable and trustworthy.

What Are the Types of Cash Flow?

There are three main types of cash flow:
1. Operating Cash Flow: Money from the company’s regular business activities, like selling goods or services.
2. Investing Cash Flow: Money used for or earned from investments like buying or selling machines, buildings, or other businesses.
3. Financing Cash Flow: Money from borrowing or paying back loans, issuing shares, or paying dividends.

How to Read a Cash Flow Statement?

To read a cash flow statement, check the three main sections: operating, investing, and financing. Start with operating cash flow—it should be positive and increasing over time. Then check if the company is investing wisely and not borrowing too much. A good cash flow statement shows the company has enough money to grow and stay strong.

What Does Positive and Negative Cash Flow Mean?

Positive cash flow means the company is earning more money than it is spending. This is a good sign. It means the business can grow, pay bills, and reward investors. Negative cash flow means the company is spending more than it is earning. It may be a warning sign, but sometimes it happens when companies are investing for future growth. So, always look at the full picture.

How Does Cash Flow Help in Choosing Good Stocks?

When you check a company’s cash flow before buying its stock, you can avoid risky businesses. Strong and stable cash flow shows the company is well-managed. These companies are more likely to give good returns, dividends, and steady growth. It’s one of the best ways to pick safe and profitable stocks in the long run.

What is Free Cash Flow and Why is it Important?

Free cash flow is the money left after a company pays for all its expenses and investments. It is very important because this money can be used to pay dividends, reduce debt, or expand the business. A company with good free cash flow is usually strong, flexible, and reliable. Investors always look for companies with strong free cash flow.