Is It Possible to Have Positive Cash Flow and Negative Net Income? (2024)

Can a Company Have Positive Cash Flow and Negative Net Income?

Cash flowis the net amount of cash and cash equivalents being transacted in and out of a company in a given period. If a company has positive cash flow, thecompany's liquid assets are increasing. Net incomeis the profit a companyhasearned, orthe income that's remaining after all expenses have been deducted. Net income is commonly referred to as the bottom linesince it sits at the bottom of the income statement.

Yes, there are times when a company can have positive cash flow while reporting negative net income. But first,we'll need to explore how cash flow and net income relate to eachother in the financial viability of the company.

Key Takeaways:

  • It is possible for a company to have positive cash flow while reporting negative net income.
  • If net income is positive, the company is liquid and profitable.
  • If a company has positive cash flow, it means thecompany's liquid assets are increasing.
  • A company can post a net loss for a periodbut receive enough cash from borrowing or other cash inflows to offset the loss and createpositive cashflow.

Understanding Net Income and Cash Flow

Net income is calculated by subtracting the costs of doing business, includingexpenses, taxes, depreciation, and interest on debt from total revenue.If net income is positive, the company is liquid and has a higher probability of paying off its debts, paying dividends to shareholders, and paying its operating expenses.

Cash flow is reported on thecash flow statement, which showswhere cash is being received andhow cash is being spent. Cash flowis the net amount of cash and cash equivalents being transacted in and out of a company in a given period. If a company has positive cash flow, it means thecompany's liquid assets are increasing.

Real-World Example of Positive Cash Flowand Negative Net Income

Below is the cash flow statement for JC Penney Inc. (JCP) as of Q2 2018. The company later filed for bankruptcy in the summer of 2020, partly due to its persistent negative cash flow problems.

Looking at the company's filings, net income is carried over from the income statement and is the starting point for calculating cash flow.From the net income amount, cash transactions for the period are eitheradded or subtracted.

  • JC Penney had a negative net income (or loss) for the period of $78 million,highlighted in red.
  • However, atthe bottom of the statement, highlighted in green, the company posted a positive cash position of $181 million.

How can that be?

  • We can see,highlighted in blue,that JC Penney received an influx of cash from borrowings of a credit facility along with additional cash from new long-term debt.
  • In otherwords, the company still posted a loss for the periodbut received enough cash from borrowing to offset the loss and createpositive cashflow.

Is It Possible to Have Positive Cash Flow and Negative Net Income? (1)

Remember that the cash flow statement only shows a company's cash position. It'snot a measure of profitability. A company can still post a loss in itsdaily operationsbut havecash available or cash inflows due to various circ*mstances.


Depreciationis an accounting method that allocatesthe cost of a fixed asset over its useful life. Depreciation accountsfor declines in the value of the asset and spreads the expense of itover the years of the useful life of that asset. Depreciation helps companies avoid taking a huge deduction in the year the asset is purchased, allowing companies to earn revenue from the asset.

Net income is calculated by deducting a company's expenses, anddepreciationis one of those expenses. However, sincedepreciation is an accounting measure, it is not an outlay of cash. As a result, depreciation expenseis added back into the cash flow statement when calculatingthe cash flow of a company.

If a company has anet loss for the periodand has a large depreciation expense amount added back into the cash flow statement, the company could record positive cash flow, while simultaneouslyrecordinga loss for the period.

Sale of anAsset

If a companysells an assetor a portion of the company to raise capital, the proceeds from the sale would be an addition to cash for the period. As a result, a company could have a net loss while recording positive cash flow from the sale of the asset if the asset's value exceeded the loss for the period.

Accrued Expenses

Accrued expenses occur when a company records an expense for purchasing an asset but does not have to pay for it until the next period. Expenses are recorded at the time they are incurred, not whenthey arepaid. For example, acompanymightrecord a substantialexpense in Q4 but not have a cash outlay until the next year when the invoice ispaid. As a result,the company might post a net loss inQ4 while maintaining apositive cash position.

When analyzinga company's financial statements, it is important to review all aspects of the company's financial position, includingnet income and cash flow. Only through a comprehensive analysis of all the financial statements can investorsmake an informed decision.

What Does Negative Net Income Mean?

A negative net income means a company has a loss, and not a profit, over a given accounting period. While a company may have positive sales, its expenses and other costs will have exceeded the amount of money taken in as revenue.

What Are Negative vs. Positive Cash Flows?

Cash flows describe the movement of money and liquid assets on and off a company's books as it makes various transactions. Positive cash flows mean that more money is coming in than going out of a company. Negative cash flows imply the opposite: more money is flowing out than coming in.

What Can Cause Negative Net Income With Positive Cash Flows?

Accounting items like depreciation, capitalized costs, or one-time charges can result in a negative net income even if cash flows were net positive for that period.

Is It Possible to Have Positive Cash Flow and Negative Net Income? (2024)


Is It Possible to Have Positive Cash Flow and Negative Net Income? ›

Yes, there are times when a company can have positive cash flow while reporting negative net income.

Is it possible to have positive cash flow and negative net income? ›

For example, a company may have substantial upfront cash receipts from sales or advance payments, reflecting a positive cash flow. However, under accrual accounting, if the expenses associated with generating those sales are high enough in the same period, this can lead to a negative net income.

Can you have a negative net income? ›

Yes. If the calculation of net income is a negative amount, it's called a net loss. The net loss may be shown on an income statement (profit and loss statement) with a minus sign or shown in parentheses. A company with positive net income is more likely to have financial health than a company with negative net income.

Can operating income be negative and net income positive? ›

Sure. Any type of income of a non-operating nature, such as a one-time gain on the sale of a subsidiary or huge amounts of interest income are examples of non-operating 'income' that can turn an operating loss into a net income.

Can positive operating cash flow Cannot be generated when earnings are negative? ›

It is possible for companies to have negative earnings and positive cash flow at the same time. Companies may generate cash by borrowing money or through other cash inflows, such as selling off assets or reducing its labor force, while posting a net loss for a certain reporting period.

What is positive cash flow vs net income? ›

Net income is the profit a company has earned for a period, while cash flow from operating activities measures, in part, the cash going in and out during a company's day-to-day operations. Net income is the starting point in calculating cash flow from operating activities.

Can cash flow be less than net income? ›

When operating cash flow is less than net income, there is something wrong with the cash cycle. In extreme cases, a company could have consecutive quarters of negative operating cash flow and, in accordance with GAAP, legitimately report positive EPS.

Can cash flow be negative? ›

Negative cash flow is when more money is flowing out of a business than into the business during a specific period. Positive cash flow is simply the opposite — more money is flowing in than flowing out.

Should net income be positive or negative? ›

Net income can be either positive or negative. If you have more revenues than expenses, you will have a positive net income. If your expenses outweigh your revenues, you will have a negative net income, which is known as a net loss.

What is an example of a positive cash flow? ›

Positive cash flow example

A small retail store generates $50,000 in revenue from the sale of its products in a month. The store's monthly expenses, including rent, utilities, payroll, and other expenses, total $30,000. This means that the store has a net cash flow of $50,000 - $30,000 = $20,000 for the month.

Can you have positive EBITDA and negative net income? ›

If your EBITDA value is positive, your core operations are profitable. It could be the interest on your loans or how you depreciated an asset that's giving you a negative net income. But if your EBITDA value is negative as well, it's time to look to cut your day-to-day costs of operations.

Can operating cash flow be greater than net income? ›

There are several circ*mstances in which a company's free cash flow (FCF) could be consistently much higher than its net income. Some reasons include: Non-Cash Expenses: Net income includes non-cash expenses such as depreciation and amortization, which reduce profitability but do not impact cash flow.

Is income positive or negative? ›

Once calculated, net income can be either a positive or negative number. In other words, if a company brings in more gross revenue than expenses, the net income is positive. If total expenses exceed revenue, the net income is considered negative, which is known as a net loss.

Why might a company have positive net income but negative cash flows? ›

Your business allows its clients to pay for its goods or services via a credit account (Cash Flows From Financing). When a customer pays with credit, the income statement reflects revenue but no cash is being added to the bank account.

What does it mean when cash flow is positive? ›

Cash flow positive: What is it? Cash flow positive simply means more cash coming in than going out. This metric indicates that a business has enough working capital to cover all its bills and will not need additional funding.

Should operating cash flow be positive or negative? ›

Operating cash flow indicates whether a company can generate sufficient positive cash flow to maintain and grow its operations, otherwise, it may require external financing for capital expansion.

Can cash flow be more than net income? ›

In fact, the net cash flow was over 1.5x higher than the company's reported net income for the same period. In some instances, a company reports a positive net income, signifying profitability. But, they generated a negative net cash flow for the period, technically paying out more cash than they received.

Can free cash flow be higher than net income? ›

Or, if a company made a large purchase (like buying a new property or investing in new intangible assets) in the recent past, then free cash flow could be higher than net income -- or still positive even when a company reports a net loss.

Can a company be in huge trouble but still show positive cash flows? ›

Q. Is it possible for a company to show positive cash flows but be in grave trouble? A: Absolutely. Two examples involve unsustainable improvements in working capital (a company is selling off inventory and delaying payables), and another example involves a lack of revenues going forward in the pipeline.

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