Is “Net Profit “ profitable for enterprise?

Is “Net Profit “ profitable for enterprise?

 an enterprise may have spent far more in cash than was actually expensed by the accounting system. i.e. the company buys 100 x $10 reams of paper to take advantage of a supplier's discount but only uses 50 reams during the financial reporting period.  So while the company outlays $1,000 in cash, it only expenses (uses up) $500 in the financial reporting period.

Similarly in revenue, a company may make sales revenue of $1,000 for the same financial reporting period but if 50% of those sales were made to customers who used their company credit accounts (accounts receivable), then the company would only receive $500 in cash in this financial reporting period. The other $500 would be owed to the company by the customers who will pay the amount in a future reporting period.

Using this simple and rather restricted example, you can see how a company can make profit but still be cash-flow negative:

·         Profit for the period = Revenue ($1,000 total sales) less expenses ($500 used reams) = positive $500 profit

·         Cash-flow for the period = Cash in ($500 cash sales) less cash out ($1,000 cash paid for reams) = negative $500 cash-flow