Cash flow is the net amount of cash and cash equivalents being transferred in and out of a business. Positive cash flow means more money is coming in than going out; negative cash flow means the opposite. It is distinct from profit, which includes non-cash items.

Cash flow is critical for survival: a profitable business can fail if it runs out of cash. It is categorised into operating, investing, and financing activities in the cash flow statement. Managing receivables, payables, and inventory is key to healthy cash flow.

Key points

• Net cash moving in and out
• Distinct from profit
• Critical for survival
• Includes operating, investing, financing