I read a lot about the definition but I can’t really get the hang of it.
Is it the cash that the company is left with at the end of the period? (Meaning the cash in their bank accounts *hypothetically*)
In: 14
Let’s say there are two companies, Joe’s Widgets and Moe’s Widgets. Both of the sell $12M of widgets a year, and both make $6M profits a year.
Now Joe’s Widgets sells retail, and so customers pay immediately. In any given month, you sell $1M of stuff and make $500K profit. At the end of every month you have $500K more cash than you started with. This is good cash flow, you can cover you expenses and have money available to give raises, buy new equipment, whatever you want.
Moe’s Widgets has one big customer, and they want a delivery of $6M of stuff every six months. So each month, Moe’s has to pay $500K of expenses to make stuff, so each month they have $500K less cash then when they started, until they make the big shipment. They make $1.5 million profit when they ship, but the proceeding months were tough. This is poor cashflow.
It’s important to note that both companies are equally profitable, the difference is just a steady influx of money vs feast and famine.
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