Cash flow is the amount of money a company actually receives and spends during a specific period. It shows how much money comes in and how much goes out. Cash flow therefore reflects real money movements, not just profit on paper.
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Cash flow shows whether a company has enough money to pay its bills and invest.
A company can make a profit but still run into problems if not enough cash comes in to meet its obligations. That is why investors often look at operating cash flow, which is the money remaining from normal business activities. Positive cash flow means more money comes in than goes out. That money can be used for investments, debt repayment or dividend. Negative cash flow means a company spends more than it receives, which can create risks over the longer term.
Short example:
Suppose a company receives €1,000,000 in revenue in one year. It pays €800,000 in costs such as salaries and rent. The operating cash flow is then €200,000 positive.
If the company also spends €250,000 on new machines, the total cash flow for that year is €50,000 negative. More money has gone out than has come in.
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