Most business owners keep a close eye on revenue, expenses, and profit, but the number that quietly influences everything from payroll to growth plans is cash flow.
Cash flow tells you whether the business has enough money on hand to run daily operations, handle unexpected costs, invest in new opportunities, or simply make it through a slow month. It’s a practical, real-world view of financial health, one that goes beyond what traditional profit numbers can reflect.
Think about it this way: A company can be profitable on paper and still struggle to pay salaries, buy inventory, or fund growth. That’s because profit is an accounting concept but cash is what keeps the engines running.
Cash flow analysis helps you understand:
It’s one of the most underrated tools in financial management, and yet, the companies that master it tend to outlive those that don’t. In this blog, we’ll break down cash flow and cash flow analysis in the simplest way possible: What it means, how to calculate it, how to read a cash flow statement, and how to analyze the numbers in a way that actually helps you make better decisions.
Let’s begin with the basics.
Cash flow is the movement of money into and out of your business. It reflects the actual cash you have available. Not projected earnings, not future invoices, but real money your business can use today.
Here's a simple way to understand it:
Cash flow shows how much money your business can access at any given moment. This is important because even profitable companies can run into trouble if their cash gets tied up in unpaid invoices, rising expenses, or long payment cycles.
Here’s what cash flow really captures:
What makes cash flow powerful is that it focuses on timing. When cash arrives early or late, it directly affects whether the business can pay its bills, fund new projects, cover emergencies, and sustain day-to-day operations. Healthy cash flow means the business has the liquidity and flexibility to make decisions confidently. Poor cash flow, even with strong revenue, creates pressure, delays, and difficult trade-offs.
Cash flow may sound complex but calculating it is pretty straightforward once you establish what you’re measuring. At its core, cash flow answers one simple question: Did the business end the period with more cash or less cash than it started with?
There are two common ways to calculate cash flow: the direct method and the indirect method. Most businesses (and accountants) use the indirect method because it aligns with how financial statements are prepared.
This method looks only at actual cash transactions.
Cash Flow = Total Cash Inflows – Total Cash Outflows
For example:
Cash received from customers: ₹10,00,000
Cash paid for expenses: ₹7,20,000
Cash Flow = 10,00,000 – 7,20,000 = ₹2,80,000
A positive number means that the business generated cash
A negative number means the business used more cash than it earned.
This is the most common method of cash flow calculation. It begins with net income and adjusts for non-cash items and changes in working capital.
The formula is: Cash Flow = Net Income
**Adjustments matter because profit includes non-cash expenses (like depreciation), so we add them back. Profit doesn’t reflect timing differences in receivables, payables, or inventory. So, we need to adjust them.
Here’s a quick example:
Suppose, the net income is ₹4,50,000 and, the depreciation is ₹80,000.
Then, increase in receivables would be –₹1,20,000
On the other hand, increase in payables would be +₹90,000
Operating Cash Flow = 4,50,000 + 80,000 – 1,20,000 + 90,000 = ₹5,00,000
So, upon using the indirect cash flow formula, we see that even though the business earned ₹4.5L in profit, it generated ₹5L in cash because receivables and payables offset each other.
Cash flow isn’t just a calculation. It’s a reflection of how efficiently cash moves through the business.
Cash flow analysis goes beyond simply knowing how much cash comes in or goes out. It means understanding why cash moves the way it does and how those movements reflect the realities of running a business.
Here are the key concepts one needs to know for cash flow analysis:
Cash inflows include any source of cash that increases your available balance. These can be any of the following:
Not all inflows are the same. For long-term stability, businesses prefer inflows from core operations (like product or service sales) rather than one-time sources like loans or asset sales.
Cash outflows are the payments a business must make to keep running and growing. These can include:
Every business has outflows but it’s the timing and the consistency that matter.
This is one of the most important distinctions.
Working capital is one of the strongest indicators of a business’s day-to-day cash health. Even profitable companies can feel cash pressure if their working capital isn’t managed well.
Working capital = Current Assets – Current Liabilities
Changes in working capital affect cash flow every single day. For example:
A business may generate strong revenue, but without disciplined working capital management that includes timely collections, accurate inventory, and balanced payables, it can still face cash shortages.
Under accrual accounting, revenue is recorded when earned, even if the money hasn’t arrived. Expenses are recorded when incurred, even if not yet paid. This means your financial statements may show growth, but your cash position may tell a different story. Cash flow analysis bridges this gap by showing what’s actually happening in your bank account.
When you understand cash flow, you can answer important questions like these for your business:
It’s not just about avoiding financial problems. It essentially helps business owners gain clarity to plan confidently, grow efficiently, and respond quickly to change.
A Cash Flow Statement is one of the three core financial statements every business relies on alongside the balance sheet and income statement. But unlike the other two, cash flow statements focus purely on cash movement, not accounting assumptions or estimates.
Simply put, it tells you how much cash came in, how much went out, and where it all went.
A Cash Flow Statement is usually divided into three parts:
When laid out properly, it gives you a clear, honest picture of the company’s liquidity and financial flexibility.
Here’s a simplified structure:
Net Change in Cash = CFO + CFI + CFF
Closing Cash Balance = Opening Cash + Net Change in Cash
If there’s one part of the cash flow statement that analysts, investors, and lenders care about most, it’s Cash Flow from Operating Activities. Because this number shows whether the business can generate cash from its core operations without selling assets, taking loans, or raising money. A healthy business is one where CFO consistently stays positive.
A Cash Flow Statement helps you answer the following questions for your business:
This is why understanding the cash flow statement is essential not just for accountants, but for founders, CFOs, managers, and investors.
Most companies need to issue a Cash Flow Statement under GAAP, IFRS, and India’s Ind AS, especially publicly listed businesses where cash transparency is mandatory. Large private companies usually prepare one as well, because lenders and investors depend on it to assess financial stability.
Smaller businesses and startups may not be legally liable to create a Cash Flow Statement, but it’s still essential as profit alone doesn’t reveal whether cash is stuck in receivables, inventory, or rising expenses. Even for early-stage companies, investors expect this statement to understand burn rate, runway, and funding needs. In short, whether mandated or not, a Cash Flow Statement is crucial for understanding real liquidity and making better financial decisions.
Analyzing cash flows doesn’t require advanced financial skills. What you really need is a methodical way to interpret the numbers and understand what they say about the business. Here’s a step-by-step approach that anyone, founder, manager, analyst, or even students can follow:
This is one of the quickest ways to check financial health.
Cash flow can fluctuate month-to-month or quarter-to-quarter, so a single period doesn’t tell you much. Here are a few indicative questions that business owners must ask:
Strong businesses generate enough cash from daily operations to cover expenses without relying on loans or selling assets. If CFO is regularly negative, it may indicate falling margins, slow collections, high inventory, rising costs, and poor cash management. Operating cash flow is the backbone of sustainability.
Working capital changes (receivables, payables, inventory) often explain why cash flow deviates from profit.
Small inefficiencies in working capital can significantly reduce cash.
A negative CFI isn’t always bad. It often means the company is investing in growth (new equipment, tech, facilities). A consistently positive CFI may suggest that the business is selling assets, pulling back on expansion, or not investing enough in the future
While strong cash flow analysis gives businesses clarity, having the right systems is what turns that clarity into action. NetSuite gives companies a unified, real-time view of financials, payables, receivables, fixed assets, and operational workflows making it far easier to track where cash is coming from, where it is getting blocked, and how to improve liquidity. Building on this foundation, Tvarana’s SuiteApps such as Bulk Email Invoices (BEI) and Inventory Count (IC) help teams accelerate cash inflows, reduce manual delays, and avoid costly errors. BEI speeds up invoicing cycles for faster collections, while IC makes inventory management more accurate freeing up cash otherwise stuck in stock discrepancies.
Additionally, Tvarana’s solution architects bring deep expertise in Fixed Assets Management, helping organizations prevent silent cash leaks, optimize depreciation, and unlock capital efficiencies. Together, NetSuite and Tvarana give businesses the visibility, control, and automation they need to strengthen cash flow with confidence.
Tvarana is an award-winning
Oracle NetSuite Consulting Firm
and an SDN partner.
info@tvarana.com
