Question

Is it possible for a company to have negative net income but at the same time a positive cash flow?

Please explain why in detail and provide an example.

Answer 1

Yes, it is possible for a company to have negative net income but at the same time a positive cash flow.
To answer this question we need to see how the cash flow is calculated (in a cash flow statement)

A cash flow statement will have three parts that are cash flow from operations, cash flow from investing and cash flow from financing

Cash flow from operations:
Net income
Add back the non cash expenses like depreciation, amortization, goodwill impairments
Add/Subtract other adjustments like gain/loss on sale of property plant and equipment etc.
Add/Subtract other increase/decrease in accounts receivables, payable, prepaid expenses
---------------------------------
Total cash flow from operations
---------------------------------
Cash flow from investing:
Buying/Selling investments
Capital expenditures
---------------------------------
Total cash flow from investing
---------------------------------
Cash flow from financing activities:
Issuing/Repaying debt, preferred stocks
Issuing/Repurchasing shares
---------------------------------
Total cash flow from financing
---------------------------------
Net cash flow=Total cash flow from operations + Total cash flow from investing + Total cash flow from operations

So, even if one part is negative (like cash flow from operations because of higher negative value of net income) and the other parts (cash flow from investing and cash flow from finance) are positive, then the net cash flow will be positive.

If net income is negative, and the company raised funds (cash inflow) by issuing debt/shares or sold investments (cash inflow), then the net cash flow will be positive.

Example:
Suppose net income in a year is say -$100000.
Depreciation=$10000
Increase/Decrease in account receivables+accounts payable and prepaid expenses=+$10000
Total cash flow from operations=-$100000+$10000+$10000=-$80000

Suppose in the same year the company sold some investments and gained an amount of say $50000 which is a cash inflow.
Total cash flow from investing=$50000

Again, suppose the company raised funds of say $40000 through debt.
Total cash flow from financing= $40000

Net cash flow=-$80000+$50000+$40000=$10000