Cash Flow

Definition

Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business. It is the difference between the cash coming into a business and the cash going out of a business. Cash flow is an important measure of a business's financial health and is used to assess its ability to pay its bills and generate profits.

Example

For example, a business may have $100,000 in sales revenue for the month, but it may also have $50,000 in expenses. The net cash flow for the month would be $50,000, which is the difference between the two. This cash flow can then be used to pay bills, invest in new equipment, or pay dividends to shareholders.

Why it Matters

Cash flow is important for businesses of all sizes, as it is a measure of the business's ability to generate profits and pay its bills. Without a positive cash flow, a business may not be able to pay its bills or invest in new equipment, which can lead to financial difficulties. Additionally, cash flow is an important measure for investors, as it can be used to assess the financial health of a business.