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Finance GlossaryCash Flow
Cash Flow
Definition of Cash Flow
The cash flow describes the amount of money that moves in or out of a company or an individual’s pocket. Cash flow can be of two types:
- Positive cash flow: more money earned than spent
-
Negative cash flow: more money spent than earned
Cash flow is an important metric in finance because it helps calculate metrics like liquidity, cash conversion ratio, and others along with giving a broad overview of a company’s financial health.
Related Terms
Indices
Indices are a collection of financial instruments that measure the performance of those very instruments.
For example, stock market indices like Nifty 50 and Sensex measure the top 50 and 30 stocks by market capitalization.
If indices go up, it generally means that the underlying stocks are performing well. The opposite is true when indices plummet.
By the way, there’s no limit to how many instruments an index can track. The Nifty Smallcap 250 tracks 250 stocks whereas Nifty Bank tracks 12 stocks.
For example, stock market indices like Nifty 50 and Sensex measure the top 50 and 30 stocks by market capitalization.
If indices go up, it generally means that the underlying stocks are performing well. The opposite is true when indices plummet.
By the way, there’s no limit to how many instruments an index can track. The Nifty Smallcap 250 tracks 250 stocks whereas Nifty Bank tracks 12 stocks.
Multi-Bagger
A multi-bagger refers to a stock that delivers returns multiple times higher than its original investment value. For example, a stock that grows five times from its purchase price is called a five-bagger. Investors often associate multi-baggers with strong business growth, long-term holding, and effective capital allocation.
Strike Price
The strike price refers to the fixed price at which a trader can buy (call) or sell (put) the underlying asset. The strike price is a key component in options trading. It helps traders determine whether or not the option would be profitable when it expires. The intrinsic value of an option is influenced by the difference between the market price and strike price.
Issue Price
The issue price is the price at which a company sells its newly issued shares during an IPO. The company that is set to go public will conduct thorough market analysis before deciding the issue price.
On-Balance Volume (OBV)
On-Balance Volume (OBV) is a volume-based indicator that tracks market pressure by linking volume with price movement. Volume is accumulated when prices close higher and reduced when prices close lower, helping traders judge the strength behind a trend.
Risk-Free Rate of Return
The Risk-Free Rate of Return is the return an investor can expect with almost no risk. Usually, such returns come from government securities like Treasury bills. These assets come with minimal risk of defaulting. The risk-free rate of return serves as a standard based on which other investments are evaluated. Any additional return expected is the compensation for taking additional risk.
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