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CW Asset Finance | Vehicle & Equipment Finance Yorkshire

← All finance questions

Is net profit the same as cash flow?

No. Net profit is what remains after all costs are deducted from revenue over an accounting period. Cash flow is the actual movement of money in and out of your bank account. A business can report a healthy net profit and still run short of cash, because profit records income when it is earned, not when it is received.

The gap usually comes from timing. If you invoice on payment terms, the sale hits your profit figure immediately but the cash arrives later. Stock bought and sitting in a warehouse consumes cash without touching profit until it sells. VAT and corporation tax leave your account long after the profits that generated them were recorded.

Capital items work the other way. Buying an asset outright is a large cash outflow, but only the depreciation charge appears in your profit figure each year. Loan repayments include a capital element that reduces cash without reducing profit.

This is why lenders look at both. A profitable business with weak cash flow may still find borrowing difficult, and a business with strong cash flow but thin margins may face questions about sustainability. Your accountant is the right person to interpret your own numbers.

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CW Asset Finance is a credit broker, not a lender. Finance is subject to status and lender approval.