Chapter 1: Cash Flow Basics


What is cash flow?

Cash flow is the measurement of net cash and cash equivalents flowing in and out of your business during a specific period of time. Cash flow indicates whether a company is able to pay its current liabilities and is an important aspect in determining the company’s financial health.

Important Cash Flow Definitions

What is free cash flow?

Free cash flow refers to your company’s operating cash flow minus its capital expenditures. This tells investors and lenders how much cash you have after accounting for maintenance or expansion of your company’s assets.

Is cash flow the same as profit?

No. Cash flow measures your company’s ability to pay your current liabilities through the calculation of inflows and outflows of cash and cash equivalents. Profit measures your company’s financial gain as a whole.

What does 'cash is king' mean?

The expression ‘cash is king’ means that cash flow is incredibly important to the health and success of your business. Positive cash flow enables you to pay your current liabilities and invest in your company’s growth.

What is cash flow from operations?

Cash flow from operations is the amount of cash that flows into your business during a specific time period from your regular, ongoing revenue-generating activities, like sales.

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