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Definition and Examples of

Cash Flow

Expanded Explanation: Cash flow is the net amount of cash being transferred into and out of a business. Positive cash flow indicates that a company’s liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, and provide a buffer against future financial challenges.

Potential Issues: Mismanagement of cash flow can result in a business’s inability to meet its financial obligations, which may lead to insolvency. Even profitable businesses can fail if their cash outflow exceeds their cash inflow.

Example: If your craft store makes more sales in a month than the sum of its rent, supply costs, and employee wages, it has positive cash flow for that month.

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