Cash flow describes the movement of money within a company over a specific period. It shows how much money actually flows into and out of the company, thereby providing a direct insight into its liquidity and financial stability.
Unlike net profit, cash flow takes account only of actual cash flows and is therefore a particularly meaningful indicator of a company’s financial health.
Typical components of cash flow are:
- Operating cash flow: Cash flow from operating activities
- Investment cash flow: Cash inflows and outflows relating to investments
- Financing cash flow: Cash inflows and outflows arising from financing activities
Cash flow is important because it shows:
- whether a company can cover its running costs
- how liquid a company really is
- whether it is possible to make investments using our own resources
- the extent to which a company is dependent on external funding
- how robust the business model is in day-to-day practice
A positive cash flow means that a company takes in more money than it spends and thus remains financially viable. A negative cash flow may be deliberately accepted during periods of growth, but it requires a clear financing strategy.
For start-ups, cash flow is a key performance indicator for identifying liquidity bottlenecks at an early stage and ensuring sustainable growth. innoWerft supports founders in structuring their financial planning, monitoring liquidity and further developing business models so that they are viable and scalable in the long term.