VEDKUBER / ACADEMY / CLASS 11 — READING A BUSINESS

Cash is King — The Three Streams of Cash Flow

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The question

"A profitable company shut down last year. No scam, no scandal — it just could not pay its own electricity bill one Friday. How is that even possible?"

Because profit and cash are different substances. Profit is an opinion (accountants' timing rules); cash is a fact (money actually in the bank). The cash flow statement is the document that refuses to accept opinions. Companies can survive years without profit — startups do it daily — but no company survives a cash drought of a few months.

Check your understanding

  1. A profitable company can still shut down because:
  2. A strong growing company typically shows which cash flow pattern?
  3. Free cash flow equals:

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