The investor’s field guide · C
Cash flow
The movement of money into and out of a business over a specified period.
Explained by the editorial team
Cash flow records or forecasts actual cash movements. Operating activity, investment in assets and financing can all affect the bank balance. It differs from accounting profit because the recognition of income and expenses does not always coincide with payment.
A worked example
A business completes a £20,000 job and records revenue, but the customer pays two months later. Wages and materials may need paying immediately. The job can be profitable while creating a temporary funding gap. Growth can enlarge that gap if more work is undertaken before invoices are collected.
What to examine
Look at receipts, payment terms, tax, debt service and necessary capital expenditure. Forecast timing rather than relying solely on annual totals. A rising bank balance may come from borrowing or delayed supplier payments rather than stronger trading. For an acquisition, model the purchase financing separately from the target’s ordinary operations. Cash must support both obligations without assuming every customer pays exactly on time.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.