What does 'cash flow' represent for a business?

Cash flow represents the net amount of cash being transferred in and out of a business, making it a crucial indicator of a company’s financial health. It encompasses all cash transactions, including operating cash flow, cash from investing activities, and cash from financing activities. Positive cash flow indicates that a business is generating more cash than it is spending, which is essential for maintaining operations, investing in growth, paying off debts, and providing returns to shareholders.

Understanding cash flow is vital for business management, as it affects day-to-day operations and long-term sustainability. It differs from other financial metrics such as total borrowed funds, which focus solely on liabilities, or income earned from investments, which pertains only to returns on invested capital. Likewise, the value of assets owned by the business is an important aspect of overall financial health but does not give insight into cash liquidity or operational efficiency.