-
- Profit and cash are different financial terminologies
- Profit is calculated at a specific point in time
- While a company may be in profit, they may lack cash as some customers may not actually have paid them yet
- Profit is the difference between revenue generated and total business costs during a specific period of time
- Profit can be an important indicator of a company's financial health and long-term success, as it helps to assess the effectiveness of a company's operations
- Cash is measured by taking into account the full range of money flowing in and out of a business
- This includes revenue from sales, operating expenses, investments, loans, and any other cash-related transactions
Diagram: Profit vs Cash Flow
Profit and Cash-flow are two distinct terms. A business that does not make a profit in the long run will cease to trade
- A profitable business is likely to fail quickly if it does not have sufficient cash
- Cash-poor businesses will struggle to pay suppliers, employees and operating expenses
- This is called insolvency
- Lifestyle retailer Joules announced plans to liquidate in December 2022 as a result of cash-flow difficulties, despite making a profit of £2.6 million during the previous year