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

FAQs

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.