Business Dictionary
Cash Flow
Definition
The net amount of cash and cash-equivalents being transferred into and out of a business.
Deep Dive
Cash flow refers to the net amount of cash and cash-equivalents being transferred into and out of a business over a period. It is a vital indicator of a company's financial health and liquidity, revealing its ability to generate cash to pay its operating expenses, service debt, make investments, and return value to shareholders. Positive cash flow means more cash is coming into the business than leaving it, while negative cash flow indicates the opposite, potentially signaling liquidity challenges.
Examples & Use Cases
- 1A SaaS company demonstrating strong positive cash flow from its recurring monthly subscription revenues, allowing it to fund R&D without external debt.
- 2A manufacturing business experiencing negative cash flow in a particular quarter due to a major capital expenditure on new automated machinery.
- 3A retail store using daily cash flow from sales to cover immediate expenses like supplier payments, rent, and employee wages.
Related Terms
LiquidityStatement of Cash FlowsOperating ActivitiesProfitability