Why Positive Net Income Can Coincide With Cash Outflows

Summary

The document explains why a company can report positive net income while experiencing substantial cash outflows. Net income follows accounting recognition rules, so revenue may be recorded before a customer pays, while expenses are recognized as related sales occur. Cash flow instead tracks when money actually enters or leaves the business.

A simplified aircraft sale illustrates the timing difference: a company can sell a plane for more than its production cost and record a profit before collecting payment, even after paying production costs. The example adds investment in a plant, which creates a cash outflow but is capitalized as an asset rather than immediately expensed. The explanation establishes that profit and cash movement measure different things. It is illustrative rather than an analysis of Airbus’s actual accounts, and it does not reconcile the reported figures in the question.

Key ideas

• Net income and cash flow measure different aspects of a company's finances.
• Revenue can be recognized before the related customer payment arrives.
• Capital investment can use cash without being immediately recorded as an expense.
• A simplified example illustrates the difference but does not analyze Airbus's actual statements.

Tags

# How can a company have positive net income if it has a negative cash outflow


# How can a company have positive net income if it has a negative cash outflow












I was reading this article, and I am puzzled by this paragraph:

Airbus reported a 34% fall in net income to €895 million ($1.1 billion). The company also suffered about €2 billion in cash outflow in the first six months of 2017.

So how can can the company have an income of `€895` if it has lost `€2 billion` in cash outflows?

If it has a `€2 billion` cash outflow, doesn't that mean that it's net income is a loss of `€2 billion`?

## Answer by Alex Taha (score 1, accepted)

https://quant.stackexchange.com/a/35344

Without looking at the Airbus article, cash flow and income do not have to move together.

Assume AirBus is a very simple company, all they did was sell one plane which cost them 100 million to build and they sold it for 120 million.

With no other transactions, AirBus would have a Net Income of 20 million but its cash flow can be negative 100 because it has paid the full cost of the parts and labor but has yet to collect from the buyer. Additionally it could have just invested 100 million in a plant and none of that is expensed yet (rather capitalized on the balance sheet) so there would be another 100 million cash outflow for a negative total cash outflow of 200 million despite being profitable.

PM if you need help, I do this for a living.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.