Why is Cash Flow Important in a Business?

Companies that generate high cash flows are expected to survive, thrive and deliver strong returns to their shareholders. Companies that generate higher levels of cash generally indicate that they are in the right business. It implies that they have been offering the right service or products at the right time and at the right place.


A high cash flow company has defensive qualities, which become the favorable option for investors during the volatility periods. Those companies have sufficient operating cash and capital will be stay longer in the market. In the other words, they are not relying on external sources of funds to pursue their opportunities.

When the companies have enough cash then they can seize the opportunity to acquire another company, develop new products or services or enter a new market.

Besides that, they are also in a better bargaining position when it comes to seeking external financing. Most of the time, those companies with high cash flow can bargain with the lenders for lower rates. As a result, their projects with be at a lower cost, making them highly viable companies.

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