2008 per of 3.96?, page-5

re:eccoi - cash flow and profit it is very easy for people to get confused betweeen cash flow and profit. for the following example, i will keep it very simple - but when you think about it, it sort of makes sense

if for example, a business bought a machine, on june 30 - the very last day of the financial year - for say $100,000. the machine is a wonderful machine, and is designed to operate, with no manpower, no fuel etc etc. anyway - the cash flow for the business in that year, is minus $100,000. - but no profits. anyway, presume that the machine is designed to last 5 years - and then it is worthless - then in accounting jargon we match revenues, with expenses, for each accounting period, and in this case, we would write of the cost of the asset, over 5 years -which is $20,000 per year. now if the machine produces $20,000 worth of product per year (and remember - with no associated costs) - then you might think that this is $20,000 of profit - well you are WRONG WRONG WRONG -however,the cost of the machine needs to be taken into account, - and this cost (which is referred to as depreciation), is matched against the revenue) - which in this case they negate each other. cash flow might be $20,000 per year, but profit is zero.

some companies manage to report profits, but have negative cash flow

hope this helps just a little