What does a deficit in cash flow indicate?

• A. Cash inflow exceeds cash outflow
• B. The enterprise is running at a loss
• C. Cash inflow is less than cash outflow
• D. Higher profit margins

Answer: (C)

A deficit in cash flow signifies a situation where the money coming into the business (cash inflow) is less than the money going out (cash outflow). This imbalance means that the company is spending more than it is earning in cash during a specified period. This negative cash flow can lead to various financial difficulties, as the company may struggle to cover operational expenses, pay employees, or invest in growth opportunities.

Recognizing this condition is critical for business management, as it serves as a warning sign that the company may need to adjust its spending or increase its revenue to maintain financial stability. Understanding cash flow dynamics is essential for sound financial planning and ensuring the long-term viability of the enterprise.