Difference Between Cash Flow & Sales Revenue

Sales revenue and cash flow are both key indicators of a company's health and performance, but they should never be confused. One tells you how much business the company is doing -- how much it's selling to customers. The other tells you how well the company is turning those sales into cash that it can use to pay its own bills -- or, of course, to return as profits to the owners.

Sales revenue represents money your company has earned from selling goods or services. Whatever you're in business to do, the money you earn from doing that is sales revenue. Note the word "earned" in the definition of revenue. A business typically reports revenue when it has earned the money, not when the money actually arrives. Say you sell $10,000 worth of merchandise to a customer on credit. By delivering the merchandise, you earn the money, so you report $10,000 in revenue. But you don't have the money until the customer pays.

Cash flow tracks cash coming into and going out of a business. Unlike a sales revenue figure, which concerns itself only with when money is earned, cash flow is recorded only when money actually arrives. In the previous example, the initial sale of $10,000 in merchandise on credit would have no immediate impact on cash flow. Only when the customer paid up would you see the sale reflected in cash flow. While revenue represents value coming into the company, cash flow works both ways. Your cash flow balance is the cash coming in minus the cash going out. Cash flow can be negative.

Sales revenue comes only from operations -- your company's reason for being in business. A company can bring in money in other ways, such as by selling assets or investing its extra money in the market, but these don't show up in sales revenue because they don't represent the company's core operations. Cash flow, on the other hand, can come from one of three sources: operations, financing or investment. If your company borrows money from a bank or sells shares of stock, the cash that comes in is a financing cash flow. Gains or losses from buying, selling and holding assets are investment cash flows.

A company can have high revenue, but low cash flow. If a lot of sales are on credit or the company has high expenses that are eating up cash as fast as it comes in, the revenue figure may be fairly robust, but the company may have trouble coming up with the cash to pay its bills. The reverse is also possible. Companies with weak revenue from operations may turn to borrowing money or selling off assets just to have the cash to keep the lights on. In that case, cash flow might look strong on the surface, but it's just an illusion.