A firm sends a client a €12,000 bill. The profit counts today. The money comes in three months. The wages are due on Friday.
← The MachineWhat it is Why it happens The numbers The trap Where you see it In one lineNextThe price tag is years of profit
Profit is counted when a sale is made. Cash is counted when money moves. Unpaid bills, and money spent long before its cost is counted, pull the two apart.
In 2019 Netflix made $1.9 billion of profit. Its free cash flow was minus $3.3 billion. It paid for shows years before their cost counted in profit.
Growing fast can empty the bank. Every new order needs cash now and pays back later. A firm full of orders can still run out of money.
In an annual report the cash flow page comes after the profit page. Put profit next to free cash flow. A minus can be building, as with Netflix, but a gap for years needs a reason.
Profit counts on the day of the sale; cash counts on the day you are paid. Check both, side by side.
Do it today
Compare profit and free cash flow for one company.
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