What does it mean to have positive cash flow?

Having positive cash flow means that the amount of cash coming into the business during a specific period is greater than the amount of cash going out. This situation is significant for a business because it indicates that the company has sufficient liquidity to meet its obligations, invest in growth opportunities, and support day-to-day operations without financial strain. Positive cash flow is a crucial indicator of financial health, as it allows a business to sustain its activities and plan for the future confidently.

In contrast, a business experiencing a net loss indicates that expenses outweigh revenues, which would lead to negative cash flow. Similarly, if operational costs exceed income, the result would typically be negative cash flow, highlighting financial difficulties. High levels of investment in new projects could also lead to temporary negative cash flow, especially if those investments do not generate immediate returns. Therefore, the concept of positive cash flow is directly tied to the balance of incoming and outgoing cash and is fundamental for maintaining the overall stability of the business.