How does cash flow impact a business's profitability?

Cash flow and profitability are two different aspects of a business's financial health. Profitability refers to a business's ability to generate profits, which is the difference between revenue and expenses over a given period of time. On the other hand, cash flow refers to the movement of money into and out of a business, and it measures the actual cash available to the business at any given time.

A profitable business does not necessarily have positive cash flow, and vice versa. For example, a business can have high revenue and profit margins, but if it has significant outstanding debts or slowpaying customers, it may struggle with cash flow. In this case, the business may have profits on paper, but not enough cash on hand to cover its expenses.

Conversely, a business may have positive cash flow but low profitability. For instance, a business may have a lot of cash coming in from sales but also have high operating expenses that eat into its profits.

In summary, while profitability is important for a business's longterm success, cash flow is critical for its daytoday operations and ability to meet financial obligations.