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Simple English definitions for legal terms
cash flow
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A quick definition of cash flow:
Cash flow is the money that comes in and goes out of a business. It shows how much money a business is making or spending. If a business has more money coming in than going out, it has positive cash flow. If it has more money going out than coming in, it has negative cash flow. Cash flow is important because it helps businesses know if they have enough money to pay their bills and invest in new things.
A more thorough explanation:
Cash flow refers to the movement of money in and out of a business. It is a measure of how much money a business generates or spends over a given period of time.
- When a customer pays for a product or service, it is considered cash inflow.
- When a business pays for rent, salaries, or other expenses, it is considered cash outflow.
- If a business has more cash inflow than outflow, it has a positive cash flow.
- If a business has more cash outflow than inflow, it has a negative cash flow.
These examples illustrate how cash flow can be used to measure a business's profitability and liquidity. A positive cash flow means a business has more money coming in than going out, which can indicate financial stability. A negative cash flow means a business is spending more money than it is making, which can lead to financial difficulties.