Net cash flow and accounting profits are two financial statements that define the technical growth of a company.
Both the terms are easy to be confused with as they have very small differences in terms of the actual monetary value. For a company to stand firm on its ground, it should have a high value for both at specific times.
Net Cash Flow vs Accounting Profit
The main difference between net cash flow and accounting profit is that while net cash flow is the amount of total money that is spent to ensure that a business unit can function properly including the salary of employees and the maintenance of pieces of equipment, accounting profit the amount that the company receives from the sales of products after deducting the amount spent on the production of products.
Net cash flow is the total amount of money that is given into the business to give it a boost in terms of production and completion of services as promised by the company. It can also be calculated to take a part of the money the company gets back. It sheds the basic idea into a business unit’s rapid growth or even their fall.
Accounting profit is the actual profit made by the business unit after deducting all the amount spent on the company. It is the revenue received by the company for which they pay taxes. This is at times pumped back into the same company to ensure continuous growth and no interruptions happen. Getting a low accounting profit from the business only hints at the downfall of the company.
Comparison Table Between Net Cash Flow and Accounting Profit
| Parameters of Comparison | Net Cash Flow | Accounting Profit |
| Can Be Received from Outside Source Only | No | Yes |
| Is Always High | No | Yes |
| Could Vary Depending on Productivity | Not always | Always depends on productivity |
| Is Expected to Be High | Yes, for the growth of the company | No |
| Determines The Salary of Employees | Yes | No |
What is Net Cash Flow?
In many ways, net cash flow is the total amount that is required by a business to function in its basic environment.
It is the net cash flow that decides whether or not a company can survive in the field with many competitors with like-minded thoughts.
All the cash spend to run a business including the salary paid to its employees, the money needed for the maintenance of types of equipment, the cash needed for transport, etc.
Any increase in the value of money that is required for the functioning of the company is indirectly an increase in the net cash flow that the investors have to provide.
Such increases in the cash flow would not necessarily mean that the company is a massive success and all the products sold by them are accepted widely.
It might just mean that the business has tried to increase their product quantity in an attempt to increase their sales and therefore their income.
At times, the net cash flow might be what the company receives from others who might be investors in the company.
So that means the amount spent on the production and the salary of employees is not just from the owners themselves but from an outside source too.
But by trying to make efficient use of the net cash flow, a business can boom in both the production and the revenue received by them annually.
The auditing department of the company might not even know the actual net cash flow until they do a complete check of all the expenses.
Such is the nature of net cash flow. It would be hard to find the exact amount.
What is Accounting Profit?
Accounting profit is the amount of money received by the company from the sales of goods after deducting the expenses of the company.
This amount can only be received from an outside source as the revenue can never be called revenue if it is produced from the producer.
But this is not the case as accounting profit does for sure depend on the net cash flow but net cash flow needn’t necessarily be depending on the accounting profit.
Due to this disparity, some companies find it difficult to see a growth in their annual income as they can’t differentiate the values.
It is always best to keep the net cash flow value always high as it will not hurt the company to have greater production.
But a low accounting profit is always a decline. This might lead to the downfall of the company.
References
- https://www.tandfonline.com/doi/abs/10.1080/01446199100000023
- https://ora.ox.ac.uk/objects/uuid:befc5d00-52e4-400c-90a4-8a291108dbee