Cash flow refers to the movement of money into and out of a business over a specific period. It provides insights into a business’s liquidity, financial health, and operational efficiency. Understanding cash flow is essential for effective financial management, planning, and decision-making.

Businesses use cash flow projections to plan for future cash needs, ensuring that they have enough funds to cover expenses and pursue growth opportunities.

Positive cash flow is crucial for maintaining liquidity, ensuring that a business can meet its short-term obligations, such as paying suppliers, employees, and other expenses. Negative cash flow, on the other hand, can signal financial distress.

Investors and analysts often look at cash flow statements to evaluate a company's performance and determine its ability to generate returns. Cash flow is often considered more reliable than net income because it accounts for actual cash movements.

Cash flow consists of inflows, cash received during a specific period, and outflows, cash spent during a specific period.

Cash inflows include:

• Operating activities: Revenue from sales of goods or services.

• Investing activities: Cash received from the sale of assets, investments, or dividends.

• Financing activities: Cash received from loans, equity financing, or other sources of capital.

Cash outflows include:

• Operating activities: Payments for operating expenses, salaries, and cost of goods sold.

• Investing activities: Purchases of property, equipment, or investments.

• Financing activities: Repayments of loans, dividends paid to shareholders, and other financing expenses.

Net Cash Flow for a period would be calculated as follows:

Net Cash Flow = Total Cash Inflows − Total Cash Outflows