if "Net cash flow from operating activities" is more than "Operating profit" , what does it mean?
1. does it mean that there are no accruals?
2. if total accruals are computed as the difference between' 'Operating profit' and 'Net cash flow from operating activities', we will negative value for accruals?
3. How to interpret the negative value of accruals.
thanks in advance
It means a positive result on the side of the company. Normally you would expect a cash flow from operations more than the net profit of the company. Because in calculating the cash flow from operations depreciation, amortizations are added back to net income. Plus other gains and losses are substracted and added to net income. Accruals either expense or income must also be reversed-added or substracted from net income. Plus movements in the current assets and current liabilities are added and substracted from net income. The result should be positive and higher than net income. Because the operating cash flow is no more net income it is cash flow from operations after all accruals have been cleared and the two important accruals in all that are depreciation and amortization.
dear prof. Cenap Ilter
thank you for your valuable answer.
you have demystified the intricacies of net operating cash flows.
Still, I have one specific doubt.
if net operating cash flows(NOPCF) are more than net operating income(NOI), does it mean that there are no accruals?
Because, I am calculating total accruals as the difference between net operating income and net operating cash flows as a part of analysis of earnings management.
How should i intepret negative accruals(i.e. NOPCF> NOI) for the purpsoe of analysis of earnings management?
thanks in advance
Operating profit has not go much to do with cash. Cash is real but profit includes estimates and judgements. Therefore, if net cashflow exceeds operating profit, the reason has much to with the type of business and its core activities. It is thrrefore not a given that net cashflow will exceed operating profit constantly or vice versa.
it means cash profit more than accrual profit. net cash flow from opering use cash basis dan operating profit use accrual basis.
Cash flow and profit are the two different things. Net cash flow is simply the balance between receipts and payments. But net profit consists of adjustments like non cash expenses, provisions, unpaid liabilities etc. Therefore, there is no possibility that net cash flow and profit are the same.
Yes all accruals must be reversed since they are non cash transactions.
net operating cash flow vs net profit, always interesting topic to discuss, which one do they have more valuable information
Every financial statement is worthwhile but cash flow and following the cash regularly like keeping the blood in the body without it we are dead.
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