Definition
Cash Flow refers to the net movement of money into and out of a business or household during a specific period. It includes all sources of cash such as revenue, loans, and investment returns, as well as cash outflows like expenses, debt repayments, and purchases.
Why It Matters
Monitoring cash flow is critical for financial health. Positive cash flow ensures that obligations can be met and investments can be made, while negative cash flow may indicate potential financial distress or liquidity issues. Businesses and individuals use cash flow analysis to make informed financial decisions.
Example
A company receives $50,000 in revenue from sales, pays $30,000 in operating expenses, and $5,000 in loan repayments during a month. The net cash flow is $15,000, indicating the company generated more cash than it spent during that period.