Net cash flow and net profit are
A) opposites.
B) different.
C) identical.
D) identical after adjustment for depreciation.

Question

Quizplus · Accepted Answer

Net cash flow and net profit are different concepts. Net profit is the amount of revenue left over after deducting all expenses, including depreciation, while net cash flow is the actual cash a business has, which takes into consideration not only profit but also changes in accounts receivable, accounts payable, and inventory. Therefore, it is possible for a business to have a high net profit but a low net cash flow if they have a lot of outstanding invoices or unsold inventory. Similarly, a business may have a low net profit but a high net cash flow if they have collected a lot of cash from their customers or reduced their inventory levels.

Net Cash Flow and Net Profit Are