Cash Flow vs. Profit: What’s the Difference? | Business: Explained

Cash Flow and Profit

Cash flow and profit are related, but they measure different aspects of a business’s financial health:

• Cash flow is the net movement of cash into and out of a business over a period. It can be positive or negative.
• Profit is revenue minus operating expenses. A negative result is typically called a loss.
• Cash flow is reported on the cash flow statement. Profit is reported on the income statement, also known as the profit and loss (P&L) statement.

A business can be profitable but still have negative cash flow, making it harder to pay expenses or fund growth. Conversely, some startups or scaling companies can have positive cash flow without making a profit. Neither metric is sufficient on its own; businesses should consider both when assessing financial health.

Practical Takeaway

Track profit and cash flow together when evaluating performance and making decisions about expenses, expansion, and growth.

Metrics and Examples

• No numerical KPIs, targets, or timelines are provided.
• Examples include profitable businesses with negative cash flow and startups or scaling businesses with positive cash flow but no profit.

Presenter and Source

• Source: HBS Online
• Presenter: Not identified in the subtitles