Cash flow refers to the net balance of cash moving into and out of a business at a specific point in time. It measures how much cash a company takes in versus how much it expends. Cash received represents inflows, while money spent represents outflows. Cash flows are analyzed using the cash flow statement, a standard financial statement that reports a companys cash source and use over a specified period. There are three types of cash flow: operating cash flow, investing cash flow, and financing cash flow.

• Operating cash flow: This refers to the net cash generated from a company’s normal business operations. Positive cash flow is required to maintain business growth.

• Investing cash flow: This refers to the net cash generated from a company’s investment-related activities, such as investments in securities, the purchase of physical assets like equipment or property, or the sale of assets. In healthy companies that are actively investing in their businesses, this number will often be in the negative.

• Financing cash flow: This refers specifically to how cash moves between a company and its investors, owners, or creditors. It’s the net cash generated to finance the company and may include debt, equity, and dividend payments.

Assessing cash flows is essential for evaluating a company’s liquidity, flexibility, and overall financial performance. Positive cash flow means a company has more money moving into it than out of it, while negative cash flow indicates a company has more money moving out of it than into it. A business is considered healthy when its cash flow is positive for a prolonged period of time. Even profitable businesses, however, can experience short periods of negative cash flow. When a business has a negative cash flow for an extended period of time, it typically becomes insolvent and may need to declare bankruptcy.