September 28, 2022

Cash flow definition

Your cash flow statement shows how cash moved in and out of your business during a specific period of time, like last month, last quarter, or last year.

Cash flow formula

A cash flow statement is formatted into three main sections: operations, investing, and financing. These sections help you see how cash changes affect each area of your business.

For each line of the cash flow statement, the formula is:

Cash Flow = Cash Received – Cash Paid Out

Company Business Cash flow definition And Formula

An example of cash received would be your sales, and cash paid out would include your expenses.

Cash flow analysis

When you do regular cash flow analysis, you review your statement against your cash flow forecast, as well as against the previous period—last month or last year, for example.

Monitoring your cash flow regularly is a fundamental part of managing your business. This type of financial review will help guide your future projections, and help you make smarter spending decisions.

Even if your profit and loss (also called P&L or income statement) shows that your company is profitable, you could still have cash flow problems and be at risk.

Why? Because cash isn’t the same as profits.

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