Investing · General financial education

Earnings and cash flow

Profit is a period calculation. Cash flow shows cash movements. Under IAS 7, operating cash flow can start from profit and adjust for items that are not cash.

In more detail

IAS 7 splits cash flows into operating, investing and financing. The operating part may list cash receipts and payments, or start from profit and adjust. Those adjustments cover non-cash items, accruals and deferrals, and items tied to investing or financing. Profit and operating cash flow can therefore differ in the same period.

Background

This is a way to read the statements, next to shares, dividends and costs. Finmon does not rate a company and does not say which figure is the true one.

An example

A company reports profit while customers pay later. Operating cash flow can then be lower than profit. Depreciation works the other way: it reduces profit without any cash going out. That is the IAS 7 logic, not a buy signal.

A common misconception

A reported profit means the same amount of cash came in during that period.

IAS 7 separates profit from cash flows and lets profit be adjusted for items that are not cash.

Source: IASB · IAS 7. Last reviewed: 2026-11-09. Editorially reviewed on 2026-11-09. Next review 2027-11-09. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.