noob question on cash flow
hi team - appreciate the answers in advance. this is probably a very easy question.
- assuming no revenues, if operating expenses are $1M... shouldn't cash from operations be -$1m?
- if you have no revenues, $1M in cogs, $1M in opex, would cash from operations be -$2M?
- should operating income / profit always tie to cash from operations in the cash flow statement? should these be the same #?
No, not at all. Expenses are different from cash outflows. For example, if you pay $100 for inventory, but have not sold it yet, that will not show up anywhere on an income statement because we have not recognized the revenue associated with that purchase, but we still would have obviously lost cash. Similarly, if someone gives Netflix $60 for their years’ subscription, but they haven’t used even 1 month yet, then we of course have $60 of cash inflow, but we cannot record any of that as revenue because we have not yet provided the service. I recommend you spend a few hours Googling and reading about Accrual Accounting.
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