Cash flow is the balance of a company’s incoming and outgoing cash and cash equivalents for a given period.

Positive cash flow indicates that a company’s liquidity position is strong or increasing; negative cash flow indicates that a company’s liquidity position is weak or shrinking. Companies with favorable cash flows are more flexible, able to meet obligations, improve company assets, return money to shareholders, and overcome challenges.

Cash flow only pertains to cash or cash equivalent aspects of the operation, it does not necessarily indicate that a company is profitable or unprofitable. A profitable company with weak cash flow could have difficulty growing or could even fail because of an inability to regularly settle short-term liabilities.