Cash Flow refers to the movement of money into and out of a business over a specific period. It indicates how well a company manages its liquidity.
How It Works:
- Cash inflows include payments from customers, loans, or investments.
- Cash outflows include expenses like salaries, rent, and supplier payments.
- Net cash flow is calculated as inflows minus outflows.
- Positive cash flow indicates surplus cash, while negative indicates shortage.
Benefits:
- Helps maintain financial stability
- Ensures ability to meet short-term obligations
- Supports business growth and expansion
- Improves decision-making and planning
Example:
A business receives ₹8,00,000 from customers in a month and spends ₹6,00,000 on expenses. The net cash flow is ₹2,00,000, indicating a positive cash position.