What is cash flow?
Updated on August 24, 2026 · by Alex
Cash flow is the money that actually came into and went out of a company over a period. Unlike accounting profit, it does not record promises: it only counts cash that really moved.
Because accounting profit and money in the bank are not the same thing, and the gap can be enormous.
If a company sells goods on credit, the books record the sale and the profit right away, even if the customer pays six months later or never pays at all. On paper it earns; in the bank account nothing has arrived. Plenty of bankruptcies happen at companies that were reporting profits: they ran out of cash to make payroll while waiting to get paid.
There is a saying in finance that sums it up: profit is an opinion, cash is a fact. Profit depends on accounting decisions — when to recognize revenue, how to depreciate a machine; the bank balance is not open to interpretation.
Looking only at net income. When profit grows and operating cash flow does not follow, there is something to explain: it may be healthy growth eating working capital, or it may be sales that are not being collected.
The most useful comparison is the simplest one: put net income and operating cash flow side by side over several quarters. If they keep drifting apart, that is the question worth asking.
