A company can be profitable and still run out of money. It happens all the time: customers pay late, inventory piles up, a big annual bill lands in the same month as payroll. The cash flow statement exists to explain exactly that gap.
Three sections, three questions
- Operating: did the day-to-day business generate or consume cash?
- Investing: did we spend on equipment, software, or other long-lived assets?
- Financing: did cash come in or go out through loans, investors, or owner draws?
Read them in that order. Healthy businesses usually show positive operating cash, modest investing outflows, and financing that is small or deliberate.
Why net income and cash disagree
Net income counts revenue when it is earned. Cash counts it when it is collected. The difference sits in accounts receivable, accounts payable, and inventory — the working-capital lines.
The one line to watch
If you only look at one number, make it cash from operations. When it stays negative while net income is positive for several months in a row, the business is quietly financing its customers. That is a pricing or collections conversation, not an accounting one.