Oregon Construction Contractors (CCB) Practice Test

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What does cash flow refer to in a business context?

The amount you pay to subcontractors
The inflow and outflow of cash
The payroll expenses compared to earnings
The automation of accounts receivable

The correct answer is: The inflow and outflow of cash

In a business context, cash flow refers to the inflow and outflow of cash within a company over a certain period of time. It is a crucial indicator of financial health, as it shows how well a business can generate cash to meet its obligations and fund its operations. Positive cash flow indicates that a company has more cash coming in than going out, allowing it to invest in growth, pay debts, and maintain liquidity. Understanding cash flow is vital for managing day-to-day operations, making strategic decisions, and ensuring long-term sustainability. It encompasses all sources of cash inflow, such as sales revenue, investments, and loans, as well as cash outflows, which include expenses, payments to suppliers, and other costs. By regularly monitoring cash flow, businesses can identify trends and make informed financial decisions.