Net Profit vs Cash Flow from operations (CFO) - What is more important?
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1. Net income is the profit a company has earned for a period, while cash flow from operations measures the cash going in and out during a company's day-to-day operations i.e., the cash which is generated through its core business.
2. Net income is calculated by subtracting the cost of goods sold, operating expenses, depreciation & amortization, interest expense and taxes from total revenue.
3. Cash flow from operations is calculated by adding the non-cash expenses such as depreciation and amortization to the net profit and then subtracting the changes in working capital.
Now lets understand few differences between Net Profit and Cash Flow from operations (CFO)
1. Net profit is recorded on an accrual basis whereas CFO deals with only cash items. Income earned is recorded in the net profit even if cash is not received