What might a negative cash flow indicate about a company?

A negative cash flow indicates that a company is spending more cash than it is generating during a specific period. This can be a significant concern, as it may suggest that the business is struggling to manage its expenses relative to its revenue, which could lead to potential financial difficulties.

When a company consistently experiences negative cash flow, it may have to rely on external financing, such as loans or equity investments, to cover its short-term obligations. Over time, if negative cash flow persists, it could result in reduced liquidity, challenges in meeting payroll, or trouble paying suppliers and other operational costs, which heightens the risk of insolvency.

Although a company may be temporarily unprofitable or making investments that lead to negative cash flow — for example, expanding operations or launching new products — this does not override the immediate concern of cash outflows exceeding cash inflows. Therefore, identifying negative cash flow is generally viewed as a red flag indicative of potential financial stress.