Why is cash flow so important in the analysis of a financial statement?
A business’s health is expressed by one thing: how much profit it makes. How much profit a business makes is a function of how much money it takes in (from sales), how much money it spends (on overhead, equipment, staff, materials, etc.), and how much money it holds (built up inventory, manufacturing buffers, etc.). In general a good business will spend and hold less money than it takes in, and that excess is profit that is distributed to shareholders/owners. This sort of thing is known as “positive cash flow.” Sources: http://en.wikipedia.
