1. Balance sheet
2. Income statement
3. Cash flow statement
STOP focusing on Profit
START focusing on Cash Flow
Cash Flow Statement 101:
1. Balance sheet
2. Income statement
3. Cash flow statement
There is nothing wrong with this…
But profit, isn’t CASH FLOW
The cash in Google's bank account would also increase by $76 billion?
Not quite..
From 2020 to 2021, CASH actually went DOWN ⬇️
From $26.4 billion to $20.9 billion
This is a reduction of $5.5 billion
Google MADE $76 billion in profit
But its cash balance went DOWN by almost $5.5 billion?
If a company makes a profit, shouldn’t its cash balance go up?!?
What's going on here?!
1. How PROFIT was converted into CASH
2. How that cash was used
3. How you got the cash balance in your bank account
The Cash Flow Statement starts with $76 billion in profit
And ends with a decrease of $5.5 billion in cash
In 2021:
Google Made a PROFIT of $76 billion
But lost $5.5 billion of Cash
Let’s dig into why this happened:
1. Cash flow from Operating Activities
2. Cash flow from Investing Activities
3. Cash flow from Financing Activities
We’ll cover each of them:
Tells you:
• How profit was converted into cash
• How much cash the business made
The company made $76 billion of profit in 2021
But it actually collected COLD HARD cash of $91.6 billion during the year
Cash collected at Google was HIGHER than Profit!
Tells you:
• What assets did the company buy?
• Did the company do any M&A?
The company spent $35.5 billion buying:
• Property and equipment
• Marketable securities (bonds and stocks)
• Making acquisitions (M&A)
Tells you:
• Did the company raise money from investors?
• Did the company get a loan?
The company spent $61.3 billion on:
• Buying back stock
• Paying back debt
• Issuing stock rewards
• Cash Flow from Operating Activities: $91.6 billion
• Cash Flow from Investing Activities: ($35.5) billion
• Cash Flow from Financing Activities: ($61.3) billion
The sum makes up the decrease in cash of ($5.5) billion
(minor diff. due to f/x)
It means Google generates INSANE amounts of cash to the tune of $91 billion per year
However, the company also SPENDS all of this cash
It is spent on FINANCING and INVESTING activities until it’s in a negative position of $5.5 billion
No.
If Google is investing in new equipment, that’s probably a good long-term decision for the company
If Google is buying back stock, that rewards its shareholders
But if Google made $91 billion in cash, shouldn’t it keep some of itself?
Google can actually afford to go into a negative cash position because its balance sheet is actually FLUSH with CASH
Google also had $118.8 billion of marketable securities (stocks and bonds) that can be sold and converted to cash.
The company already has so much CASH on hand!
The executives at Google chose to spend the cash on investments and give it back to shareholders instead of adding more cash to the company's bank account
• Profit is an accounting measure
• Profit doesn’t tell you how much CASH was made
• Uncover the mismatch between profit and Cash Flow
• The Cash Flow Statement explains How PROFIT was converted into CASH
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