$ qubo learn fundamentals/03

Cash flow beats earnings

Net income follows accounting rules that record revenue and costs when they are earned, not when cash moves. The cash flow statement shows the actual cash coming in and going out.

It has three parts: operating cash flow, from the business itself; investing, such as buying equipment or companies; and financing, such as borrowing, repaying debt or paying dividends.

Free cash flow is operating cash flow minus capital expenditure. It is the cash left after keeping the business running and growing, available for debt, dividends or buybacks.

A company can report profits while burning cash, for example if customers pay late. A persistent gap between net income and operating cash flow is worth understanding.

// rule to remember

// your turn

On one stock page, note whether operating cash flow is higher or lower than net income.

Educational content only. Not investment advice. Past data does not predict future results. Risk disclosure