4 ms·
The comment you are responding to was "profitable but no cash flow" (due to non-cash deductions). I'm not clear what you mean by "the other way".
by PopAlongKid 11mo ago
The comment you are responding to was "profitable but no cash flow" (due to non-cash deductions). I'm not clear what you mean by "the other way".
- deleted 11mo ago[deleted]
- jimnotgym 11mo agoIf you were "profitable but no cash flow" then you must have non-cash additions to your profit, not deductions. A classic example of 'profit but no cashflow' might be where you made a profit but spent a lot of money on stock that you haven't sold yet. Or you made a lot of sales that you are yet to be paid for. In the PE world it is just as likely that you made a profit before interest and tax, but you paid it all in interest. You would then have an operating profit but no cashflow due to a cash item. It could still make it a good business to own, if you didn't need the debt, or wanted to have the interest paid to you. Maybe you made a profit but paid it all in dividends to a holding company. Then you have a profit but no cash flow due to cash items that don't affect the p&l.
- PopAlongKid 11mo agoYou're right about non-cash additions. I was confusing this with an enterprise showing a loss (especially for tax purposes) despite a positive cash flow. The classic example would be residential real estate, where depreciation can cause a net loss despite the landlord receiving enough rent to pay mortgage/property tax/maintenance. This is why in the U.S. there are rules that limit current deductions on the tax return for passive losses. So I would think the "other way" from profitable/no cash flow is loss/with cash flow.