Q1 What is the difference between cash flow and profits? Can a profitable firm have negative...

Q1 What is the difference between cash flow and profits? Can a profitable firm have negative cash flow for the same period? why or why not?

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Answer-

Cas flows statement gives us the overview of how much money flows into and out of the company as a result of different activities which are operating, investing, financing activities that a company has. The cash flows statement determines the sources of money and exact amounts that come from every category of activities that are mentioned. .

Cash flows from operating activities are related to transactions that influence the net income and are related to everyday business operations.

Cash flows from investing activities are related to the acquisition or disposal of long-term assets.

Cash flows from financing activities are related to the acquisition or repayment of capital used to finance the company’s operations including common stock etc.

Profit is the financial benefit realized when revenues generated from a business activity exceeds the expenses, costs incurred and taxes paid. Profits is in general equal to revenues less expenses.

Yes, the company can make a net profit and have negative cash flow. For illustration some of the bills might be due before a customer pays an invoice and the company don’t have cash in hand to cover the expenses. This leads to net profit but a negative cash flow.

jeff jeffy answered 1 year ago

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