Hi!!
Based on the most common used financial glossary the answer to your
question is yes.
You must note that both concepts are related but different!! There are
certain things that cash flow isn't very good at telling. For example,
cash flow doesn't tell us the profit earned or lost during a
particular period. In the statement of cash flow there are numbers
like "cash increase from sales minus expenses." At first glance, this
sounds like a number that is pretty darn close to profit--but it
isn't.
See the Cash Flow formula:
Free Cash Flow = Net Operating Profit ? Taxes ? Net Investment ? Net
Change in Working Capital
You can see there that if your company is, for example, heavily
charged with taxes it will be very difficult to materialize the
operative profits into a positive cash flow.
There are also some problems when the difference between time delays
of cashing a sell and paying an expenditure is big.
"Trading profit is the difference between income and expenditure, and
one might expect it to be closely related to cash flow, on the basis
that more income equals more profit and more cash, while more
expenditure equals less profit and less cash. In the long term this is
true, but the key is in the timing.
The "income" side of profit is sales in the period concerned, but
there can be a long delay between making a sale and actually receiving
the cash in the bank that results from it. Similarly, there is usually
a delay (unfortunately often a shorter one) between buying goods or
services and paying for them. Further, cash flow is directly affected
by capital expenditure, with the spreading effect of depreciation
replaced by deferred payments, if any. Dividends (or drawings for an
unincorporated business) do not affect the profit & loss account, but
they certainly have an immediate impact on cash flow."
"Cash flow forecasting"
http://homepages.nildram.co.uk/~jimella/jacs/cash.htm
related to this see:
"Cash Flow vs Profit" at 'Making Cash Flow Forecasts':
http://www.planware.org/cashflow.htm#2
"Profit is often a misunderstood term. Profit is the surplus in money
terms that a firm has made after paying all the costs associated with
producing and selling that product."
"What is Operating Profit?":
http://www.bized.ac.uk/learn/business/accounting/busaccounts/notes/oprof-ex.htm
"Cash flow is one of the most important aspects of any business. Cash
flow should not be confused with profit - they are different concepts!
Cash flow shows the money flowing into a business from sales, interest
payments received, and any borrowings and the amount of money flowing
out of a business through paying for wages, rent, interest owing,
paying back loans, buying raw materials and so on."
"Cash Flow simulation"
http://www.bized.ac.uk/learn/business/accounting/cashflow/simulation/
See also "Cash Flow Learning Trail: Why Cash Flows Statements and
Profit and Loss Accounts Differ":
http://www.bized.ac.uk/learn/business/accounting/cashflow/trail/cashflow5.htm
I hope that this helps you. Feel free to request for a clarification
if you need it.
Regards.
livioflores-ga |
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