What does cash flow refer to in a business context?

Cash flow in a business context refers to the total money being transferred in and out of a business. This encompasses all cash inflows, such as revenues from sales and investments, as well as cash outflows, including expenses, costs of goods sold, and any other payments the business must make. Understanding cash flow is crucial because it affects a company's ability to maintain operations, pay its debts, and invest in growth opportunities.

Positive cash flow indicates that a business is generating more cash than it is spending, which is vital for sustainability. Conversely, negative cash flow can signal potential liquidity problems, even if the business is profitable on paper. This concept is distinct from profit, which does not account for all cash activities and may include non-cash items, making cash flow a more immediate indicator of a company's financial health.