Hello, hello, hello, I totally agree with $tockdella, please...

Hello, hello, hello, I totally agree with $tockdella, please don’t confuse two totally different things between a Profit/Loss statement with a Cash Flow statement. I said many times in the past about this – one cannot work out profit and loss from cash flow! They are two different things. Let me try differently this time. Let’s use an example – a company ABC sells only cables for simplistic sake:

At the beginning of the quarter, It bought 10 cables at $10 each and paid $100 to the supplier.

It sells it for $14 each, so a profit of $4 each cable.

At the end of the quarter, it sold 5 cables, so it made $20 profit from total income of $70 (5 x $14)

So far, this company has made a profit, but now let’s look at its cash flow during the quarter:

Cash outgoing = $100

Cash inflow =$70

So the cash flow is -$30 – note this is negative.

So what it means:

1.The company has made a profit.

2.The company still has 5 cables left ($50 in inventory) for sale for next quarter.

3.The company received less money during this quarter than it spent – hence negative cash flow, but it may become positive next quarter because if it sells all 5 remaining cables, it has no more supplier to pay and will have a $70 pure cash inflow.

The company delivered a 40% more revenue than same time last year and have improved warehouse facility, it reported the negative cash flow, I understand that it was due to purchase of inventory anyway and the company indicated that it expects positive cash flow next quarter. The company has also indicated that it expects to be cash flow positive next quarter.

The capitalisation is less than its half yearly revenue right now, it operates in a future proof E-commerce business and ranked number one seller on Amazon, it was profitable last year and most likely it will be profitable again this year. From my very limited knowledge on accounting and business, it is a very solid business and going from strength to strength, yet the share price drops 20% on a reasonable positive news. Well, I guess this is what stock market does from time to time.

For me, I believe it is a golden buying opportunity. Let's see.