Health & Fitness
Income vs Cash
Everyone knows what net income is — net income is the primary driver of earnings per share, stock market pricing moves, and headlines. Revenue minus costs = net income. A simple, elegant, and straightforward equation that can be applied to the corporate world as well as to your personal financial plan. There is, however, another metric that can arguably be more important to some firms that might not receive as much coverage.
Cash Flow.
Cash flow, to summarize it in a manner that applies to personal finances, is more concerned with the timing of cash flows as they relate to certain expenses, than simply taking a snapshot of net income at a certain point in time. Cash flow relates to liquidity (paying the bills) and making sure that the organization (or your household) has enough cash on hand in order to meet any unexpected expenses or events that may arise. It is also important to remember that while cash flow and net income might seem to be the same thing at first, they are definitely not. Without getting into too much of the nitty gritty of accounting, there are important differences that can result in large discrepancies between the two.
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A few of the most notable differences are
Depreciation
Inventory
Accounts Receivable
Accounts Payable
