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Cash flow positive != profitable

by perry5000 14y ago

BCM43 14y ago
What does it mean?
- frankc 14y ago
  cash flow positive just means you had more money coming in that going out. Profit is calculated on an accrual basis, not a cash flow basis. For instance, if I sell you a car, I can recognize the revenue from that before you give me the cash. The debt you owe me is now an asset. On the other hand, there are things like depreciation of assets which count as expenses even though no cash changes hands right now. These are just a couple of examples on how cash flow and profit are not the same, but to get the full gist of it, you need to cover basically what gets covered in an intro accounting course.
jervisfm 14y ago
What is the difference between the two ? Don't you need to have a net positive flow in order to be profitable ?
- slap_shot 14y ago
  http://www.investopedia.com/articles/01/110701.asp#axzz2EC5J5aQ4 http://www.investopedia.com/articles/01/110701.asp#axzz2EC5J...
- deleted 14y ago
  [deleted]
- nhebb 14y ago
  An explanation is given in the Operating Cash Flow vs. Net Income, EBIT, and EBITDA section of this Wikipedia entry: http://en.wikipedia.org/wiki/Operating_cash_flow http://en.wikipedia.org/wiki/Operating_cash_flow
- ChuckMcM 14y ago
  Being operationally cash flow positive means that on a day to day basis your bank balance is increasing. Being profitable means that all of the money comes in in greater than your total costs. So for example, if you look at HP's write down, they were operationally cash flow positive for the quarter but are 'writing off' 8+ billion dollars. So they "lost" over $8B this quarter. Aka not profitable during the quarter. So the milestones you look for as a company are that you are cash flow positive for the day (all of todays costs covered by revenue), cash flow positive for the quarter (net increase in cash on and over the quarter) and cash flow positive for the year (net cash increase for the year), and finally profitable (total income exceeded all costs, both tangible and intangible (like depreciation)).
  - TeMPOraL 14y ago
    So to put it simply, cash flow is like a differential of profit? So you can have a profit of -1M$, but as long as the next month you get more (like -0.8M$), you're cash flow positive (+0.2M$), right? I'm having trouble parsing the examples given in this thread; the above sounds like what I more-less understood from them.
    - aidenn0 14y ago
      Let's say one month the only business you do is when I write you an IOU for $40k and your expenses are $30k. You have made $10k in profit (since the IOU is worth $40k), but you are cash-flow negative, since you have $30k less cash in the bank.
    - lmm 14y ago
      Nope, no differential. It's more like profit = cash flow (i.e. profit on day-to-day things) + profit/loss on investments/loans (e.g. taking out a loan, paying off a loan, but also cases where you own the same thing as before, but value it higher or lower now for some reason). So e.g. during the housing bubble, some companies were cash flow negative (i.e. losing money on their day-to-day business), but they recorded a profit for the quarter because the buildings they owned were worth more at the end of it than they had been at the start.
    - 14y ago
- endersshadow 14y ago
  Great question! The answer is a resounding no! Also, just because you're profitable doesn't mean you have a positive cash flow! Profit is what's called Net Income (for argument's sake, let's do EBIT--Earnings Before Income Taxes). Cash flow is simply your delta in cash from one period to the next. Lots of things go into net income, but essentially it's revenue minus costs. Because of GAAP (Generally Accepted Accounting Practices--only in the US), you recognize revenue when it is earned not when it is collected. So, let's say you buy a car and you pay $5,000 down on a $30,000 car. The car company records revenue of $30,000. In their balance sheet, they also add $5,000 to cash, and $25,000 to what's called Accounts Receivable. Their cash flow is now $5,000. Let's further say that they owe payroll, to the tune of $10,000 for that month. And you were the only poor bastard that bought a car from them that month. They have to pay $10,000 in cash for payroll, and that also gets logged as an expense. So, their profit shows a $20,000 net profit, but they have -$5,000 in cash flow. You can extend the example to make it positive for a company that's not profitable, if you'd like.
  - njr123 14y ago
    Isn't EBIT 'Income before interest and taxes'?
    - soperj 14y ago
      I sincerely doubt that the E stands for income.
      - njr123 14y ago
        Oops. I mean Earnings.
  - Aloisius 14y ago
    EBIT is Earnings before Interest & Taxes, not Earnings before Income Taxes.
    - endersshadow 14y ago

Cash flow positive != profitable

BCM43 14y ago

What does it mean?

frankc 14y ago
cash flow positive just means you had more money coming in that going out. Profit is calculated on an accrual basis, not a cash flow basis. For instance, if I sell you a car, I can recognize the revenue from that before you give me the cash. The debt you owe me is now an asset. On the other hand, there are things like depreciation of assets which count as expenses even though no cash changes hands right now. These are just a couple of examples on how cash flow and profit are not the same, but to get the full gist of it, you need to cover basically what gets covered in an intro accounting course.

jervisfm 14y ago

What is the difference between the two ? Don't you need to have a net positive flow in order to be profitable ?

slap_shot 14y ago
http://www.investopedia.com/articles/01/110701.asp#axzz2EC5J5aQ4 http://www.investopedia.com/articles/01/110701.asp#axzz2EC5J...
deleted 14y ago
[deleted]
nhebb 14y ago
An explanation is given in the Operating Cash Flow vs. Net Income, EBIT, and EBITDA section of this Wikipedia entry: http://en.wikipedia.org/wiki/Operating_cash_flow http://en.wikipedia.org/wiki/Operating_cash_flow
ChuckMcM 14y ago
Being operationally cash flow positive means that on a day to day basis your bank balance is increasing. Being profitable means that all of the money comes in in greater than your total costs. So for example, if you look at HP's write down, they were operationally cash flow positive for the quarter but are 'writing off' 8+ billion dollars. So they "lost" over $8B this quarter. Aka not profitable during the quarter. So the milestones you look for as a company are that you are cash flow positive for the day (all of todays costs covered by revenue), cash flow positive for the quarter (net increase in cash on and over the quarter) and cash flow positive for the year (net cash increase for the year), and finally profitable (total income exceeded all costs, both tangible and intangible (like depreciation)).
- TeMPOraL 14y ago
  So to put it simply, cash flow is like a differential of profit? So you can have a profit of -1M$, but as long as the next month you get more (like -0.8M$), you're cash flow positive (+0.2M$), right? I'm having trouble parsing the examples given in this thread; the above sounds like what I more-less understood from them.
  - aidenn0 14y ago
    Let's say one month the only business you do is when I write you an IOU for $40k and your expenses are $30k. You have made $10k in profit (since the IOU is worth $40k), but you are cash-flow negative, since you have $30k less cash in the bank.
  - lmm 14y ago
    Nope, no differential. It's more like profit = cash flow (i.e. profit on day-to-day things) + profit/loss on investments/loans (e.g. taking out a loan, paying off a loan, but also cases where you own the same thing as before, but value it higher or lower now for some reason). So e.g. during the housing bubble, some companies were cash flow negative (i.e. losing money on their day-to-day business), but they recorded a profit for the quarter because the buildings they owned were worth more at the end of it than they had been at the start.
  - 14y ago
endersshadow 14y ago
Great question! The answer is a resounding no! Also, just because you're profitable doesn't mean you have a positive cash flow! Profit is what's called Net Income (for argument's sake, let's do EBIT--Earnings Before Income Taxes). Cash flow is simply your delta in cash from one period to the next. Lots of things go into net income, but essentially it's revenue minus costs. Because of GAAP (Generally Accepted Accounting Practices--only in the US), you recognize revenue when it is earned not when it is collected. So, let's say you buy a car and you pay $5,000 down on a $30,000 car. The car company records revenue of $30,000. In their balance sheet, they also add $5,000 to cash, and $25,000 to what's called Accounts Receivable. Their cash flow is now $5,000. Let's further say that they owe payroll, to the tune of $10,000 for that month. And you were the only poor bastard that bought a car from them that month. They have to pay $10,000 in cash for payroll, and that also gets logged as an expense. So, their profit shows a $20,000 net profit, but they have -$5,000 in cash flow. You can extend the example to make it positive for a company that's not profitable, if you'd like.
- njr123 14y ago
  Isn't EBIT 'Income before interest and taxes'?
  - soperj 14y ago
    I sincerely doubt that the E stands for income.
    - njr123 14y ago
      Oops. I mean Earnings.
- Aloisius 14y ago
  EBIT is Earnings before Interest & Taxes, not Earnings before Income Taxes.
  - endersshadow 14y ago