Profit on paper does not always mean cash in the bank. Cash flow is the net movement of money into and out of a business over a period. Positive cash flow means more cash is coming in than going out; negative cash flow means the opposite. A company can be profitable by accounting standards yet still run out of cash if receivables are slow or inventory is high.

The cash-flow statement divides activity into operating, investing, and financing categories. Operating cash flow shows whether the core business generates cash. Investing cash flow reflects purchases and sales of long-term assets. Financing cash flow covers debt, equity, and dividends. Together the three sections explain why the cash balance changed.

Managers watch cash flow closely because it determines the ability to pay suppliers, employees, and lenders on time. Investors and lenders examine it to assess liquidity and sustainability. Forecasting cash flow is therefore a central discipline of financial management, especially for growing or seasonal businesses.