01
Operating activities
Cash from the main business: customers paying, suppliers and employees being paid. This is the first place to look. A business that earns profit but keeps showing weak operating cash is worth questioning.
The analysis notebook · Day 04
Profit is not
the same as cash.
A business can show a profit and still struggle to pay salaries. The difference sits between the profit and loss account and the cash flow statement.
The simple answer: profit is an accounting result. Cash is what is actually in hand. A healthy business needs both.
01 / The idea
Two different questions.
Profit asks: after matching revenue with the costs of earning it, did the business make a surplus? Cash flow asks: how much money actually came in and went out in this period?
PROFITRevenue - expensesRecorded when the sale or cost is earned or incurred, even if no cash has moved.
CASH FLOWCash in - cash outCounts money only when it is received or paid.
THE GAPTiming & non-cash itemsCredit sales, stock, depreciation, loans and capital spending all sit in the gap.
The NCERT Class 12 chapter defines a cash flow statement as a statement of inflows and outflows of cash and cash equivalents, split into operating, investing and financing activities.
02 / Three kinds of cash flow
Where the cash comes from.
02
Investing activities
Cash spent on or received from long-term assets: machines, buildings, investments. Buying a factory is a cash outflow now, but it enters profit slowly through depreciation.
03
Financing activities
Cash from raising or repaying money: share capital, loans, debentures, dividends. A loan brings cash in without being profit.
04
Non-cash items
Depreciation reduces profit but no cash leaves that day. That is why cash flow statements add it back when they start from profit (the indirect method taught in NCERT).
03 / A small example
Profit of ₹40, cash of zero.
A tiny business sells goods worth ₹100 on credit. The goods cost ₹60. The customer promises to pay next month.
Sales recorded (credit)₹100
Less: cost of goods₹60
= Profit on paper₹40
Cash received so far₹0
Cash in hand from this sale₹0
Illustration only. These are made-up round numbers to show timing, not a real company. If the supplier and the staff want to be paid this month, ₹40 of profit does not help.
04 / A real-company pointer
Spending can run ahead of earnings.
In the June 2026 quarter, Reliance Industries reported consolidated EBITDA of ₹54,067 crore. In the same quarter its capital expenditure was ₹38,682 crore. Capex is cash going into new assets such as plants, networks and stores.
This is not Reliance's cash flow statement, and EBITDA is not operating cash flow. I use the two numbers only to show that a large part of earnings can be reinvested in assets. Source: Reliance Industries Q1 FY27 media release.
05 / What I learned
Follow the cash, not just the profit.
My biggest lesson: profit tells me if the business model earns more than it spends. Cash tells me if the business can survive the next month. I should read the profit and loss account and the cash flow statement side by side.
Questions I will ask next time: Are customers paying on time? Is stock piling up? Is the profit coming from the main business or from selling an asset?
A commerce student's learning notebook. Not investment advice or a recommendation to buy or sell any share.
Source notes
The receipts behind the numbers.
- NCERT Class 12 Accountancy: Cash Flow Statement · Definition, the three activity types, non-cash items and the indirect method.
- Reliance Industries: Q1 FY27 media release · Consolidated EBITDA and capital expenditure for the quarter ended 30 June 2026.