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Cash flow refers to the movement of money into and out of a business, representing the operating activities, investing activities, and financing activities during a specific period. Cash flow provides a clear picture of a company's ability to pay its short-term liabilities, such as bills, wages, and loans.
Analyzing cash flow can provide insights into the underlying health and profitability of a company. A business might be profitable on paper but struggling with cash flow, indicating potential issues in collections or expenses management. Positive cash flow ensures that a business has enough funds to operate smoothly. Positive cash flow also enables a company to invest in new opportunities, research and development, and expansion without relying on external financing.
