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Cash Flow

Written By

James Barra

Written By

James Barra

James is an investment writer and brokerage expert with a background in financial services. A former management consultant, he's worked on major operational transformation programmes at top European banks. A trusted industry name, James's work at DayTrading.com has been cited in publications like Business Insider.

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Edited By

Michael MacKenzie

Edited By

Michael MacKenzie

Michael is a writer, editor and broker reviewer with over a decade in journalism and publishing. His niche lies in editing and fact-checking content in the financial services sector, with a focus on online brokers and trading platforms. Michael previously reported on politics and economics in the Middle East and edits books for established publishers.

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Fact Checked By

Tobias Robinson

Fact Checked By

Tobias Robinson

Tobias is the CEO of DayTrading.com, an active investor, and a brokerage expert. He has over 30 years of experience in financial services, including supervising the reviews of more than 500 trading brokers, and contributing via CySEC to the regulatory response to digital options and CFD trading in Europe. Tobias' expertise make him a trusted voice in the industry, where he's been quoted in various financial organizations and outlets, including the Nasdaq.

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Updated

Jan 11, 2026

Cash flow is the amount of money both going into, and out of, a company during the course of a period, normally a financial year.

Cash received (from customers buying the firm’s goods or services) are inflows, whereas money spent (payments for expenses, such as taxes or those expenditures accruing to other firms) are outflows.

Positive Cash Flow

Positive cash flow refers to the situation whereby money coming into the business exceeds that going out.

A company that cannot generate positive cash flow will not be able to generate returns for its owners and will thus not likely survive long.

A cash shortage is one of the main reasons for small business failure. If a firm has positive Free Cash Flow, it can cover all its expenses arising from its operations, maintain its asset base and have money left over for distribution to its owners and/or creditors.

Cash Flow In Trading

This data can be investigated via the Cash Flow Statement that a firm publishes (normally annually) on its sources and usage of cash.

There are three categories on the statement, namely;

• Cash Flow from Operations (CFO)
• Cash Flows from Investing (CFI)
• Cash Flows from Financing (CFF)

The statement aims to reconcile the Balance Sheet (a snapshot of the firms’ assets and liabilities) and the Income Statement (an indication of a firm’s profits over a period), by recording ALL the company’s cash transactions over this time, showing the extent to which revenue booked via the Income statement have been collected.

Both investors and company management teams spend a large amount of time analysing cash flow trends, evaluating how firms use that money with the former looking for signs of changes in the speed and efficiency of cash collection.

Due to differences in the timing, sometimes there may be a difference between net income/earnings and cash flows, which need careful watching.

Although some can be considered relatively benign, such as rises in inventory levels, (bulk buying can often lead to lower purchase prices), but failure to collect debts due in a timely manner or falls in sales volumes or poor customer credit controls can often be an early warning sign of potential business failure ahead.

Both investors and the firm’s creditors want to be sure that the firm can continue to service its current debts, and one of the easiest ways to see this is to measure the ratio of net operating income to total debt service, known as the debt service coverage ratio.