Cash flow means the movement of money in and out of a business or person’s account.
It shows how much cash is coming in (income) and going out (expenses) over a period of time.
Why It Matters
Cash flow tells you:
- Can you pay your bills on time?
- Are you earning more than you spend?
- Is your business growing or struggling?
In short, it’s a way to check your financial health.
Types of Cash Flow
1. Operating Cash Flow (OCF)
- Cash from your main activities: sales, services, paying rent or salaries
- Example: A shop sells ₹10,000 worth of goods and pays ₹5,000 in rent — Net OCF = ₹5,000
2. Investing Cash Flow (ICF)
- Cash used to buy or sell assets, like property, machines, or stocks
- Example: Buying a new laptop for business is a cash outflow
3. Financing Cash Flow (FCF)
- Cash from loans, investors, or repaying debts
- Example: Taking a ₹1 lakh loan is cash inflow, paying EMIs is outflow
Simple Example
You run a small café.
- Daily sales = ₹2,000 (cash inflow)
- Pay for groceries = ₹500
- Loan EMI = ₹300
- Buy a new coffee machine = ₹5,000 (once)
So your:
- Operating Cash Flow = ₹1,500/day (₹2,000 – ₹500)
- Financing Cash Flow = –₹300
- Investing Cash Flow = –₹5,000 (one-time)
How Cash Flow is Used
- For budgeting: See where your money goes
- In businesses: To plan growth, control costs, or attract investors
- To avoid debt: Helps track if you can repay loans or EMIs
- For investment decisions: Healthy cash flow = good financial planning
Positive vs Negative Cash Flow
| Type | What It Means |
|---|---|
| Positive | More cash in than out — you’re growing |
| Negative | More cash out than in — be cautious |
