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Cash flow shows how money moves through your business — what’s coming in and what’s going out. It helps you see how much cash you have at any given time, not just what’s on paper. When you’re bringing in more than you spend, that’s positive cash flow — a sign things are going well. But if more money is leaving than coming in, you’ve got negative cash flow, which can create problems if it continues. Tracking your cash flow regularly gives you a clear picture of your financial reality and helps you plan better for the future.
Think of cash flow like your business’s heartbeat — steady, healthy cash flow keeps everything running smoothly. It shows whether you have enough cash on hand to pay bills, cover salaries, manage day-to-day operations, and invest in growth. Strong cash flow gives you the flexibility to make smarter decisions, weather tough times, and seize new opportunities when they come.
Think payroll, rent, utilities, and supplier payments. This category tracks all of it. Net income, depreciation, changes in working capital—these are often adjusted to calculate true operating cash flow.
This means your business is bringing in more cash than it’s spending. That’s a green flag. It gives you the flexibility to pay your bills on time, invest in growth opportunities, and build a financial cushion for tougher times.
Not necessarily. A temporary negative cash flow might be due to strategic investments, like launching a new product or buying equipment, that can lead to higher future returns. But if your cash flow stays negative over multiple periods without clear ROI, it’s a warning sign that your operations may be unsustainable.
Example:
If your business earned ₹10,00,000 from sales and spent ₹3,00,000 on rent, salaries, and supplies,
Net Cash Flow = ₹10,00,000 – ₹3,00,000 = ₹7,00,000
Example:
Let’s say:
Understanding how to read and interpret your cash flow is just as important as calculating it. Here’s how to break it down:
Examine how operating, investing, and financing cash flows relate to one another. For example, it's important to know whether you are generating enough cash from your business operations to cover both investments and debt repayments. If not, can this situation be maintained over time?
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Are your cash flows improving month over month or year over year? A single instance of positive cash flow might seem promising, but consistent growth is a stronger indicator of long-term financial stability.
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Revenue is what your business earns from selling products or services. Cash flow refers to the real-time movement of cash coming into and going out of a business or individual’s finances. You can have high revenue and still run out of cash if payments are delayed.
Free Cash Flow (FCF) represents the cash remaining after a company has covered its operating expenses and made necessary investments in capital expenditures. It’s a strong indicator of financial health and flexibility, used for reinvestment or rewarding shareholders.
This ratio helps investors assess if a stock is undervalued or overvalued compared to its actual cash generation. It’s especially useful when net income is affected by non-cash items.
Yes—public companies are legally required to. For private businesses, it's not mandatory, but it’s a smart move. It gives clarity, helps with forecasting, and keeps you ahead of surprises.