What Is Cash Flow And Why Is It Important For Investors?
Positive cash flow means that for a period of time, more money came in than went out.
June 21, 2021

People talk a lot about a company being profitable or not. In reality, you wouldn't expect young growth companies to be profitable, but that doesn't mean they aren't making plenty of money.

Positive Cash Flow

Positive cash flow means that for a certain period of time, more money came in than went out. It does not mean, however, that the company is profitable.

Cash-flow statements show the actual money flowing in and out of a company's bank account. One look and you can see whether the company is "generating cash" or "burning cash." 

When a company is cash flow positive, they have control over their future. A negative cash flow means either raising money or eventually going bust.

Positive cash flow is usually a result of diligent governance over cash inflows and expenditure. That's what we want to see - smart, strategic management! 

It can also stem from a company's business model. Take Groupon (GRPN), for example. 

If Suzy goes to Groupon.com and buys a $10 coupon for $20 worth of nail care, Groupon collects her $10 on the spot. Then, months later Suzy redeems her Groupon. Some time after that, Groupon remits a portion of Suzy's $10 to the salon.

Groupon does this thousands of times a day - collecting cash from its subscribers long before it pays the merchants. That creates positive cash flow. 

In turn, positive cash flow can fund the company's growth even if the company is losing money.

So, when exploring companies to invest in, remember that the cash-flow statements throwing off the most positive vibes are worth a second look.

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.

The Home of Successful Investing.

© 2023 MyWallSt Ltd. All rights reserved.







This website is operated by MyWallSt Ltd (“MyWallSt”). MyWallSt is a publisher and a technology platform, not a registered broker-dealer or registered investment adviser, and does not provide investment advice. All information provided by MyWallSt Limited is of a general nature for information and education purposes, and you should not construe any such information as investment advice. MyWallSt Limited does not take your specific needs, investment objectives or financial situation into consideration, and any investments mentioned may not be suitable for you. You should always carry out your own independent verification of facts and data before making any investment decisions, as we cannot guarantee the accuracy or completeness of any information we publish and any opinions that we publish may be wrong and may change at any time without notice. If you are unsure of any investment decision you should seek a professional financial advisor. MyWallSt Limited is not a registered investment adviser and we do not provide regulated investment advice or recommendations. MyWallSt Limited is not regulated by the Central Bank of Ireland. MyWallSt Limited may provide hyperlinks to web sites operated by third parties. Your use of third party web sites and content, including without limitation, your use of any information, data, advertising, products, or other materials on or available through such web sites, is at your own risk and is subject to the third parties' terms of use.