Share
Explore BrainMass

profit and a negative cash flow

Is it possible for a company to have a profit and a negative cash flow? Why or why not? If so, what should management do?

Which ratios do you think would be helpful in assessing the financial strength of a company? Why?

What methods are used to analyze an organization's financial condition and performance?

Solution Preview

Yes, it is possible for a company to have a profit and a negative cash flow. The Income Statement, which calculates profits and losses, works on accrual basis (i.e. records transactions as it happen, regardless of whether cash is received or not). The Cash Flow Statement, on the other hand, works on cash basis (ie. records transactions when there is cash involved).
<br>
<br>To illustrate the scenario of profits with negative cash flow, let's say a company has completed a service for its customer, of value $500,000. The customer has yet to pay for the service at the end of the financial year (the $50,000 still owing). Before the end of the financial year, the company prepays its insurance for the coming year ...

Solution Summary

Profit and a negative cash flow scenarios are posed.

$2.19