What does "cash flow" refer to?

Cash flow refers to the total amount of money being transferred into and out of a business during a certain period. It encompasses all cash transactions, including revenue from sales, expenses, investments, and any other cash movements. Understanding cash flow is crucial for businesses because it affects their ability to meet obligations, invest in growth, and maintain operations. Positive cash flow indicates that a business has sufficient liquid assets to cover its expenses, while negative cash flow can signal financial trouble.

This concept is distinct from profit, which is calculated after expenses have been deducted from revenue; therefore, it doesn't fully capture the movement of cash. Also, cash flow is not limited to the cash stored in a business's accounts, as it involves assessing inflows and outflows rather than just a snapshot of current cash on hand. Lastly, revenue generated from sales is just one component of cash flow, as it doesn’t account for other cash inflows and outflows that affect the overall financial health of a business.