December 20, 2008
How can a company have their net income increase but also have their cash flow decline at the same time?
Can you answer Jamie G's question about cash flow?:
How can a company have their net income increase but also have their cash flow decline at the same time.
Cash Flow Analysis
How can a company have their net income increase but also have their cash flow decline at the same time.
Cash Flow Analysis
Filed under More Cashflow Answers by admin
Comments on How can a company have their net income increase but also have their cash flow decline at the same time? »
Income may be due, but not paid. Income could be other than cash, such as stocks.
Purchases and Sales are usually recorded when the sale is made, not when the cash is received …
Say, for example, I buy £10,000 stock on 30 days and sell it at £15,000 on 90 days ..
My 'Net Income' is £5,000 … however if I pay up when I should and don't get paid until expected, after 30 days my Cash Flow goes £10,000 'negative' untill 60 days after that it goes £15,000 positive (for a net balance of £5,000).
Of course I know this, so I will have arranged with my Bank for a £10,000 overdraft to cover the 60 days ..
Now consider a business with thousands of transactions a day and what might happen if one or two large buyers delayed payment ?