Business Term
Cash Flow
Cash flow is the movement of cash into and out of a business over a period.
Formula
Ending cash - opening cash = net cash flow
Use when
Use it when investigating why a profitable business still has cash pressure.
Watch out
Cash receipts, payments, taxes, payroll, purchases, capex, borrowing and repayment
Updated: 06/27/2026Quality: ReviewedSources: 1
What it means
Cash flow tracks cash movement rather than profit. A company can show revenue or profit while still running short of cash because of collection timing, inventory, prepayments, capex, or debt repayment.
How to calculate it
| Lens | Formula / treatment | When to use it |
|---|---|---|
| Basic | Ending cash - opening cash = net cash flow | Shows change in cash balance |
| Operating cash flow + investing cash flow + financing cash flow = change in cash | Decomposes cash movement by activity | |
| Free Cash Flow = operating cash flow - capital expenditure | Approximates cash available after reinvestment |
What counts / what does not
| Item | Treatment | Why it matters |
|---|---|---|
| Include | Cash receipts, payments, taxes, payroll, purchases, capex, borrowing and repayment | They move cash |
| Exclude | Uncollected revenue, purely non-cash expenses, accounting gains | They are not cash movement |
What moves the number
| Driver | Metric impact | What to watch |
|---|---|---|
| Collection timing | Time from sale to cash receipt | A reason profitable companies can run short of cash |
| Working capital | Receivables, inventory, payables | Often absorbs cash during growth |
| Investment and financing | Capex, fundraising, debt repayment | Creates non-operating cash movement |
When it helps
- Use it when investigating why a profitable business still has cash pressure.
- Use it when deciding how much hiring, capex, marketing spend, or debt repayment the business can support.
How to use it
- Separate operating, investing, and financing cash flow, then explain the gap from profit.
- Review monthly cash balance, expected receipts, expected payments, and minimum required cash.
Decision cautions
- Profitability and cash availability are not the same.
- Financing inflows can make cash flow look better, but they should be separated from operating cash generation.
Read with
| Metric | Role | Why read together |
|---|---|---|
| EBITDA | Comparison-oriented profit metric | Reconcile with cash flow to judge cash generation |
| Runway | Months of cash remaining | Informed by cash burn and cash balance |
Example
Example: recording one million yen of revenue does not improve this month's operating cash flow if the customer pays next month.
Compare with
| Metric | Difference | Why read together |
|---|---|---|
| Profit | Accounting profit | Cash flow is cash movement |
| Revenue | Sales recognized | Cash flow tracks actual cash receipt timing |
Common mistakes
- Looking only at revenue growth can miss cash absorbed by receivables or inventory.
- Confusing financing inflows with operating cash generation misreads business health.
Frequently asked questions
How is cash flow different from profit?
Profit is the accounting difference between revenue and expenses. Cash flow is actual cash moving in and out.
Why should cash flow be monitored?
Because operations, investment, repayment, and hiring are ultimately constrained by cash on hand.
Sources
| Sources | Kind | Link |
|---|---|---|
| YogoQ Core business foundation editorial baseline | editorial | — |