Profit tells you if your business is viable. Cash flow tells you if it will survive. Many profitable businesses fail because they run out of cash. The cash flow statement tracks every rupee, dollar, or euro moving in and out of your business.
"Revenue is vanity, profit is sanity, but cash is king."
— Common business saying
You sold ₹10L of goods on credit. P&L shows ₹10L revenue. But customers haven't paid yet. You have ₹0 cash to pay rent and salaries next week.
You received ₹20L in advance from a customer. Cash looks great. But you haven't delivered yet — this isn't revenue. You also owe suppliers ₹15L.
Cash from day-to-day business operations — selling products, paying suppliers, employee salaries, rent, taxes.
Cash spent on or received from long-term assets — buying equipment, selling property, making investments.
Cash from borrowing, repaying debt, or equity transactions — loans, owner contributions, dividends.
"ABC Trading Co." — For the year ended March 31, 2026:
| Particulars | Amount (₹) |
|---|---|
| A. Operating Activities | |
| Net Profit | 4,05,000 |
| Add: Depreciation | 1,00,000 |
| Less: Increase in Receivables | (50,000) |
| Less: Increase in Inventory | (1,00,000) |
| Add: Increase in Payables | 75,000 |
| Net Cash from Operations | 4,30,000 |
| B. Investing Activities | |
| Purchase of Equipment | (2,00,000) |
| Net Cash from Investing | (2,00,000) |
| C. Financing Activities | |
| Loan Repayment | (1,00,000) |
| Dividends Paid | (50,000) |
| Net Cash from Financing | (1,50,000) |
| Net Change in Cash (A+B+C) | 80,000 |
| Opening Cash Balance | 4,20,000 |
| Closing Cash Balance | 5,00,000 ✓ |
Cash flow ≠ profit. A profitable business can fail if it runs out of cash (receivables not collected, inventory piled up)
Three sections: Operating (core business), Investing (long-term assets), Financing (debt & equity)
Positive operating cash flow is the most important signal — it means the core business generates cash
Free Cash Flow = Operating Cash Flow − Capital Expenditure. This is what's truly available for growth
The closing cash balance must match the cash figure on the balance sheet — this is how statements interconnect