Why is my profit higher than my cash flow?

Usually working capital. Growing receivables and inventory absorb cash that the profit and loss account has already recognised as earned.

Businessfinance

Free Cash Flow Calculator

Free cash flow and how well profit converts to cash. Persistent conversion below one hundred percent means reported profit is not arriving in the bank, which is worth explaining.

Also called: fcf calculator, cash conversion ratio.

Free cash flow

₹88,00,000

₹88,00,000 of free cash flow, 10.73% of revenue. Cash conversion is 102.33% of net income, which is healthy: cash is arriving faster than profit is booked.

Free cash flow margin

10.73%

Cash conversion

102.33%

Capex as a share of revenue

6.34%

Free cash per 1% of revenue

₹88,000

On the conversion

is healthy: cash is arriving faster than profit is booked.

How this is calculated

Method and background

How this is calculated

Free cash flow is operating cash flow less capital expenditure: what the business generates after the spending needed to keep going. Comparing it to net income gives cash conversion, and a conversion consistently below one hundred percent usually means working capital is absorbing cash as the business grows, or that profits are recognised well before they are collected. Neither is fatal and both need an explanation.

cash generated by operations, less what must be reinvested to keep operating

CFO: Cash from operations

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

a capital-light business

Cash from operations: ₹1,40,00,000
Capital expenditure: ₹52,00,000
Net income: ₹86,00,000
Revenue: ₹8,20,00,000

Free cash flow₹88,00,000

1.4 crore less 52 lakh

Open this example

capex equal to operating cash leaves nothing

Cash from operations: ₹1,40,00,000
Capital expenditure: ₹1,40,00,000
Net income: ₹86,00,000
Revenue: ₹8,20,00,000

Free cash flow₹0

boundary

Open this example

Method and limits

What it assumes

All capital expenditure is maintenance and growth combined, which the cash flow statement does not separate.

What it deliberately does not model

A single year is noisy. Lumpy capital spending distorts one period and evens out over three.
Growth capex depresses free cash flow while creating value, so a low figure is not automatically bad.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

Why is my profit higher than my cash flow?: Usually working capital. Growing receivables and inventory absorb cash that the profit and loss account has already recognised as earned.