Cash Flow vs Profit

Business Finance

Cash flow and profit are different — a business can be profitable on paper while running out of cash, or generate strong cash flow while reporting losses. Profit (income statement) follows accrual accounting; cash flow (cash flow statement) follows actual cash movements. Common scenarios: rapidly growing companies often have accounting profits but negative cash flow (working capital absorbing cash); mature companies often have strong cash flow even with declining profits. Cash is what pays bills and survives downturns. Many profitable businesses go bankrupt from cash flow problems. Monitor both — bank balance, AR aging, AP aging, and the cash flow statement.