In plain words: The net amount of cash and cash-equivalents being transferred into and out of a business.
Cash flow describes the real money moving in and out of a company over a period of time. Money comes in from sales and goes out for wages, supplies, and other costs. The difference between these flows shows whether a business is generating or burning cash.
Why does cash flow matter more than profit?
A company can report a profit on paper yet still run short of actual cash to pay its bills, because accounting profit includes items that are not money changing hands. Cash flow shows the genuine liquidity of a business, which is why it sits alongside measures like EBITDA when assessing financial health.
How does cash flow relate to investing?
For an investor studying an individual stock, steady positive cash flow can suggest a company funds itself comfortably, while persistent negative cash flow may signal strain. It is one lens among many and never a guarantee of future results.
Key takeaways
- Cash flow tracks the actual money entering and leaving a business.
- A profitable company can still face cash shortages.
- Positive cash flow is one signal of financial health, not a promise.