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Cash & working capital
Why profit is not cash
Profit is revenue earned less costs incurred; cash is what arrived less what left. They differ by working capital changes, capex, debt movements, and non-cash charges like depreciation.
Owned by: AnalystTest band: Analyst
In practice
The bridge from net income to cash is the cash flow statement. Learn to walk it in your head: profit, add back D&A, subtract the growth in receivables and inventory, add the growth in payables, subtract capex.
The kind of thing the test asks
- Which transaction increases profit but not cash this month?
- Net income $100k, depreciation $20k, receivables up $40k, inventory up $10k, payables up $15k, capex $30k. Free cash flow is…
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