In layman’s terms, cash flow is basically the cash received (coming into the business) over a specific time period less the cash going out of the business in the form of payments. You have a positive cash flow when the cash received exceeds the cash paid out - a simple concept. However, managing and controlling cash can become complex. If the cash being paid out exceeds the cash being received in the business, you are in a negative cash flow position. This is critical because, if it persists, your company may be unable to pay its bills and continue operating. It is possible to find yourself in this position even if your profit and loss (P&L) statement says you are profitable.
Cash To Cash Cycle
This cycle is extremely important. This measure illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the more working capital a business generates, and the less it has to borrow. The cash to cash cycle is a continuous measure that is defined by adding the number of days of inventory supply to the number of days of receivables outstanding and then subtracting the number of days of payables outstanding. The result is the number of days of working capital the company has tied up in managing the supply chain.