What is cash flow?

Cash flow refers to the movement of money into and out of a business over a specific period. It encompasses all cash transactions, including revenue from sales, payments for expenses, and other cash disbursements. Understanding cash flow is crucial for businesses as it affects their ability to maintain operations, invest in growth, and manage financial obligations.

This concept is distinct from total profits, which represent the surplus of income over expenses and do not provide a complete picture of a business's liquidity. Additionally, fixed costs refer to expenses that do not change with the level of sales or production, while sales revenue minus expenses focuses on profitability rather than the timing and availability of cash. Therefore, understanding cash flow helps businesses gauge their financial health and operational efficiency.