IB Business Management 3.7 Cash Flow Key Definitions

Amortization refers to the process of writing off the cost of an intangible asset (e.g., patents, trademarks, goodwill) over its useful life. This expense is spread out evenly over the asset's estimated lifespan.

The movement of money into and out of a business over a specific period. It includes both cash inflows (receipts) and cash outflows (payments).

A cash flow forecast is a financial projection that estimates the amount of money expected to flow in and out of a business over a specific period. It helps businesses predict their future cash position, ensuring they have enough liquidity to cover expenses and make informed financial decisions.

Refers to an entity's ability to repay its debts, based on its financial health and reliability. It's often assessed by credit ratings, which consider factors like income, debt levels, past borrowing history, and the stability of cash flows.

The process of allocating the cost of a tangible asset over its useful life to account for wear and tear, obsolescence, or usage.

The purchase of non-current assets (e.g., machinery, property) or financial assets (e.g., stocks, bonds) with the expectation of generating future returns.

Liquidity refers to a business's ability to convert assets into cash quickly to meet short-term obligations.

A liquidity crisis occurs when an entity or market does not have enough liquid assets (cash or assets easily converted into cash) to meet its short-term financial obligations.

Interruptions to the normal functioning of a business, often caused by unforeseen events.

The financial gain obtained when revenue exceeds expenses, can be classified as gross profit, operating profit, or net profit.

Working capital is the difference between a business’s current assets and current liabilities. It represents the resources available to fund day-to-day operations.