What is cash flow?

Cash flow represents the movement of money into and out of a business over a specific period. It is the net amount of cash generated or absorbed from a company's operating activities, investments, and financing.

Understanding cash flow as the difference between incoming cash and outgoing cash provides a clearer perspective on the company's liquidity position and overall financial health. A positive cash flow indicates that a business has sufficient liquidity to cover its expenses, invest in growth, and respond to unforeseen challenges. Conversely, negative cash flow might signal underlying financial issues that need to be addressed.

The other options, while related to financial performance, do not accurately define cash flow. Total income refers solely to revenues, without considering expenses or outflows. Total expenses focus only on outgoings, omitting inflows. Net profit takes into account all revenues and expenses but does not directly address the timing and management of cash within the business, which is crucial for assessing cash flow.