Sri Lanka Equity Forum
Dear Reader,

Registration with the Sri Lanka Equity Forum would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.

Thank You
Sri Lanka Equity Forum

Discussion Forum for Stock Market Investors in Sri Lanka

Submit Post
සිංහල පරිවර්තනය

Display results as :


Rechercher Advanced Search

Latest topics

» Ainv pchh lcem
by TuTanKaman Today at 5:42 pm

» COCR can be attractive
by suku502 Today at 1:59 pm

» CFVF will cross 34/= level today ...
by suku502 Today at 1:28 pm

» ! CSF.N.0000 | 697 Millions Rights ..
by Chanuque Yesterday at 11:25 pm

» Earn 1.5% daily interest.. guaranteed..
by Gallardo Yesterday at 11:12 pm

» AEL Declines to 20.9
by samaritan Yesterday at 7:34 pm

» Daily News Bulletin | දිනපතා ප්‍රවෘත්ති
by Sstar Yesterday at 3:34 pm

» CDB, Collect or Sell?
by ranferdi Yesterday at 1:43 pm

by Gallardo Yesterday at 1:31 pm

by Eugine Fernando Yesterday at 12:42 pm

» ? Your Point Of View Before Telling My Experience ..
by Chanuque Yesterday at 11:32 am

» LLUB for short term?
by MRF Wed Mar 21, 2018 10:09 pm

by nirowat Wed Mar 21, 2018 10:08 pm

by thankrishan Wed Mar 21, 2018 4:57 pm

» CDB - Jounery Begun..
by mtsfernando Wed Mar 21, 2018 4:21 pm

» MACD A Powerful Tool to Predict Market Trends
by wiser Wed Mar 21, 2018 2:48 pm

» Market Sell Off
by DS Wijesinghe Wed Mar 21, 2018 1:18 pm

» Marriott International to open its first Sri Lankan hotel in 2014
by mahasona Wed Mar 21, 2018 12:09 am

» No confidence motion and CSE
by samaritan Tue Mar 20, 2018 11:19 am

by Ran49 Tue Mar 20, 2018 7:39 am

Forum Disclaimer

The information contained in this forum have been submitted by third parties directly without any verification by us. The information available in this forum is not researched or purported to be complete description of the subject matter referred to herein. We do not under any circumstances whatsoever guarantee the accuracy and completeness information contained herein. its blogs, forums, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not in any way be responsible or liable for loss or damage which any person or party may sustain or incur by relying on the contents of this report and acting directly or indirectly in any manner whatsoever.

Trading or investing in stocks & commodities is a high risk activity. Any action you choose to take in the markets is totally your own responsibility, its blogs, forums, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information. The information on this website is neither an offer to sell nor solicitation to buy any of the securities mentioned herein. The writers may or may not be trading in the securities mentioned.

You are not connected. Please login or register

Sri Lanka Equity Forum » Stock Market & Forum Help » Profit vs. cash – The difference

Profit vs. cash – The difference

Go down  Message [Page 1 of 1]

1 Profit vs. cash – The difference on Sun Oct 27, 2013 5:37 pm


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
An important lesson not only you are investing on stocks but for your day today life as well. Especially if you have small scale businesses. Actual cash is something we should not forget at any time. Should take drastic actions if it's not healthy.

Profit vs. cash – The difference

By Dinesh Ranasinghe
View(s): 45

Although a key reason for business failure can be attributed to running out of cash, many investors and businesses do not give due attention to this. It is critical to understand that profit does not equal cash flow in a business. They are not the same. It really does not matter if sales, profits and assets increase if there is no cash to continue. Depreciation, loans and loan repayments are a few examples of factors that only affect either profit or cash flow but not both. Hence, to succeed it is critical to understand the difference between the two.


In simple terms, profit is the surplus income over expenses. In reality, income and expenses may not be in actual cash. For example, if a business sells on credit, it is considered to be generating revenue (income) even though cash is not received immediately. Similarly, there may be expenses which are not paid immediately but are recognised as expenses and should be paid in the future from earnings. Thus, profit is commonly calculated using non-cash transactions. This fundamental model is known as the accruals concept, which states that transactions are logged when they take place rather than when payments are received or paid. For these reasons, a profit and loss (P&L) account provides an insight into the profitability of a business, but it says very little about the actual cash position.


Many businesses set objectives for profits and neglect cash. Cash flow is the actual money coming in and going out of the business. It is imperative to have cash to meet day-to-day obligations, such as procurement of supplies, creditors, staff commitments, etc. Thus, businesses should prepare a cash flow budget and statements to control and monitor their cash position – but astonishingly many still do not.

Balancing act

Profit and cash flow may sometimes be contradictory metrics. For instance, to increase profitability a business may have to sell on credit. On the other hand, to improve cash flow businesses may have to offer a discount for cash customers.
A business cannot run out of cash but nor should it have an unprecedented cash balance lying around doing nothing. Thus, a successful business needs to strike a balance between profit and cash and maintain the appropriate amount of cash. Although profit and cash are not the same, in the long run profits should and do turn in to cash. For public/listed companies, publishing a cash flow statement along with the Balance Sheet and P&L account is mandatory – this emphasises the significance of cash flow as it allows intelligent assessment of the business. Yet, it is common for investors and businesses (especially small businesses) to focus solely on profits and neglect cash flow. What they fail to understand is that profitability is a measure of success whilst cash flow is survival. Thus, survival should have priority over profit simply because a business cannot be profitable without surviving. Profit is important but cash is too. After all, ‘cash is king’

2 Re: Profit vs. cash – The difference on Sun Oct 27, 2013 5:49 pm


Good one UKboy. Thanks.

Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum