What does the term "cash flow" refer to?

The term "cash flow" refers specifically to the total amount of money being transferred into and out of a business. This includes all incoming funds, such as revenue from sales and investments, as well as all outgoing funds, such as expenses, salaries, and payments on debts. Understanding cash flow is crucial for analyzing a business's financial health, as it provides a comprehensive view of liquidity and the ability to meet obligations over time.

While total profit, cumulative income, and net income are important financial metrics, they do not capture the complete picture of cash movements. Total profit reflects what is earned after expenses but does not account for timing differences in cash transactions. Cumulative income only considers the income side without including expenses, and net income is the profit after all expenses but does not represent the actual cash position, which may be affected by non-cash items or timing of cash receipts and payments. Therefore, cash flow is a broader term that encompasses all cash movements, both inflows and outflows.