cash flow

Cash Flow

The money actually moving into and out of a business over a period of time.

When you'd see it: Anytime someone says "profitable on paper but out of cash." Cash flow shows up on its own statement — the cash flow statement — alongside the income statement (P&L) and balance sheet. Finance teams obsess over it because a company can be profitable and still go broke.

Why it matters: Profit is an opinion; cash is a fact. A business can report a profitable quarter while running out of money to make payroll, because revenue earned is not the same as cash collected. Cash flow tells you whether the lights stay on.

Common mistakes: Treating revenue and cash flow as the same thing. A $1M sale on net-60 terms is revenue today but cash in two months — and if the company spent to deliver that sale before the cash arrives, the gap shows up as a cash crunch. Operating cash flow is also distinct from total cash flow, which includes investing and financing activity.

Related P&L, EBITDA