Cash flow is the net amount of cash moving into and out of a business during a specific period. Positive cash flow means more money came in than went out. Negative cash flow means the opposite.
A cash flow statement — one of the three core financial statements — breaks this movement into three categories: operating (day-to-day business), investing (buying or selling assets), and financing (debt, equity, dividends).
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Cash flow is arguably the most scrutinised metric in business. “Cash is king” is a cliché because it’s true — companies can survive losses but they can’t survive running out of cash.
If someone says a business is “cash flow positive,” the company is generating more cash than it spends in its operations. “Free cash flow” (FCF) is a related term: operating cash flow minus capital expenditures. It represents the cash available for debt repayment, dividends, or reinvestment.
Cash flow vs. profit
A company can be profitable and still have negative cash flow. Revenue recorded on an accrual basis may not have been collected yet. A business that books $1 million in sales but hasn’t collected payment is profitable on paper — but it can’t pay rent with uncollected invoices.
Source: IFRS, IAS 7 — Statement of Cash Flows