Cash Flow is the movement of money into and out of a business. It shows how much cash a company receives and how much it spends during a period.
A business needs positive cash flow to manage its regular payments. Cash flow can also show when a company may face a shortage of money even when its sales are good.
How It Works:
- Cash inflows include payments from customers, loans, or investments.
- Cash outflows include expenses like salaries, rent, and supplier payments.
- Net cash flow is calculated as inflows minus outflows.
- Positive cash flow indicates surplus cash, while negative indicates shortage.
Benefits:
- Helps maintain financial stability
- Ensures ability to meet short-term obligations
- Supports business growth and expansion
- Improves decision-making and planning
Example:
A company receives Rs 15 lakh from customers in a month. It spends Rs 10 lakh on its business expenses. The remaining ₹5 lakh adds to its cash flow for that month.