# Cash Flow vs Net Income | Key Differences & Top Examples

Cash flow refers to the net cash generated by the company during the specified period of time and it is calculated by subtracting the total value of the cash outflow from the total value of the cash inflow, whereas, net Income refers to earnings of the business which is earned during the period after considering all the expenses incurred by the company during that period.

## Differences Between Cash Flow and Net Income

Amazon’s Net Income is at \$2.37 billion whereas, its Cash Flow from Operations is at \$16.44 billion. Why is there a difference between the two? Cash Flow and Net Income both are two key factors in judging whether a company has been doing well or not. But how can we relate to each other?

In this article, we will have a look at both cash flow and net Income to make sense of how they work.

### What are Cash Flows?

The cash flow statement is completely different from that income statement. Let’s take an example to understand this.

A company made revenue of \$200 in 2016, and the expenses they have incurred were \$110. That means, the net profit is \$(200 – 110) = \$90.

But if we look from the point of view of the cash flow statement, we need to consider the cash inflow and cash outflow. The company’s cash inflow was \$170 (didn’t collect the whole amount in 2016), and the cash outflow was \$90 (the rest of the amount would be paid in 2017). So the net cash inflow is \$(170 – 90) = \$80.

So it has been proven that even if the company made a profit of \$90, its net cash inflow was \$80.

And there lies the importance of cash flow statement. The cash flow statement helps an investor recognize the cash inflow and cash outflow of the company so that they don’t get allured by the hefty profits/ revenue).

It has often been seen that net cash flow is negative for a company even after earning a whopping profit. So, without looking at the cash flow statement, an investor cannot conclude about the performance of a company year by year.

### What is Net Income?

Profit or net income is the “bottom line” of the income statement of the company.

To ascertain the profit or net income, a company needs to set up an income statement and find out the net balance of income and expenses.

These income and expenses are reported because the transactions have been done whether or not the cash has been a pair or received.

In the next section below, we will see how to set up a cash flow statement (direct & indirect method both) and income statements to ascertain the net income.

### Cash Flow from Operations format and example

First, we will only look at the format of the indirect method of cash flow statements along with example as it is directly related to the net income. And then, we will look at the format of net income as well as the example of the same.

#### Computation of Cash Flow from Operating Activities

• Here lies the importance of net income in the cash flow statement. To start off the computation of cash flow from operating activities, you need to start with the net income (we will learn how to find out net income in the next section).
• Then, you need to add back all the non-cash items like depreciation and amortization. We will add them back because they are not actually expensed in cash (only in the record).
• You need to do the same for sales of assets. If the company has incurred any loss on the sale of assets (which is not actually a loss in cash), we will add back, and if the company has made any profit on the sale of assets (which is not actually profit in cash), we will deduct the amount.
• Next, we need to take into account any changes that took place during the year in regards to
• Finally, we will add back or deduct any changes in the and assets. Please note that in current liabilities, we will not include and dividend payable.

Now, let’s have a look at the example of the computation of cash flow from operating activities of Amazon–

source: Amazon SEC Filings

You can learn Cash Flow Statements comprehensively from the following –

### Net Income format and example

As you can see that in order to calculate the net cash flow, we need to refer to the net income (profit). After taking the net income into account, we can add back or deduct the respective adjustments and will ascertain the net cash flow from operating activities under the indirect method of cash flow.

So, let’s have a look at the format and the example so that we can understand how to find out the net income in the first place.

#### Format

Have a look at the basic format so that we can understand what it is all about in the first place. And then we will take an example to illustrate it.

Below is the snapshot of the Income Statement of Amazon.

source: Amazon SEC Filings

Now, if, as an investor, you need to set up a cash flow statement under the indirect method, you will be able to start off with the net income.

You can also learn about Income Statement from the following comprehensive articles.

### Apple Cash flow vs Net Income

##### Positive Cash Flows and Postive Net Income

See below Apple’s Cash Flow from Operations and Net Income. Both its Net Income and Cash Flows have been positive.

source: ycharts

##### Which companies have positive cash flows and positive net income?

There can be various reasons that can lead to positive cash flows and net income. Some of these are listed below –

• The company should have Strong Product Lines.
• Should be profitable with strong and consistent Profit Margin
• Writeoffs, Asset Sale, and impairments should be insignificant relative to its Revenue.

### Positive Cash Flows and Postive Net Income Examples

Below are some examples of top companies with Positive cash flows and positive net income.

 Name Market Cap (\$ mn) CFO (\$ mn) Net Income  (\$ mn) Toyota Motor 161,334 43,974 23,584 Wells Fargo 278,551 169 21,938 Alphabet 635,433 36,036 19,478 Bank of America 247,106 18,306 17,906 Microsoft 536,267 33,325 16,798 Johnson & Johnson 357,041 18,767 16,540 China Mobile 211,921 38,108 16,334 Allergan 80,840 1,425 14,973 Wal-Mart Stores 227,082 31,530 13,643 Gilead Sciences 90,491 16,669 13,501

### Snap Inc: Cash flow vs Net Income

##### Negative cash flows vs Negative net income

See below Snap’s Cash Flow from Operations and Net Income. Both its Net Income and Cash Flows are Negative.

source: ycharts

##### Which companies have Negative cash flows and Negative net income?
• Mostly, these are companies that do not generate enough revenues as compared to its expenses and investments.
• They work on a very thin margin or are loss-making.
• Most Tech companies funded by external private equity investment and go for an IPO who such characteristics

### Negative Cash Flows and Negative Net Income Examples

Below are some examples of top companies with negative cash flows and negative net income.

 Name Market Cap (\$ mn) CFO (\$ mn) Net Income (\$ mn) Tesla 51,449 (124) (675) Nokia 36,475 (1,609) (848) Halliburton 36,260 (1,703) (5,763) Symantec 17,280 (220) (106) Biomarin Pharmaceutical 15,793 (228) (630) Cheniere Energy 11,238 (404) (610) Alkermes 9,119 (64) (208) Seattle Genetics 7,331 (97) (140) Tesaro 7,260 (288) (387) Alnylam Pharmaceuticals 7,247 (308) (410)

### Pearsons: Cash flow vs Net Income

##### Positive Cash Flow and Negative Net Income

See below Pearsons Cash Flow from Operations and Net Income. Pearsons Net Income is negative. However, its Cash Flow is positive. Why?

source: ycharts

The real reason is the Impairment of Intangible Assets. We note that Pearson’s impairment of intangible assets of \$2,505 million has led to huge losses in 2016.

source: Persons SEC Filings

#### Which companies have Postive cash flows and Negative net income?

Some of the companies that may have the above traits are as follows –

• Negative Net income can be because the company is loss-making.
• Mostly, Strong companies report losses due to write-offs, impairments, or business restructuring.
• Net Income can be negative also because of Loss on Sale of Assets.

### Positive Cash flows and Negative Net Income Examples

Below are some examples of top companies with Postive cash flows and Negative net income.

 Name Market Cap (\$ mn) CFO (\$ mn) Net Income  (\$ mn) Vodafone Group 76,352 15,606 (6,909) BHP Billiton 34,076 10,625 (6,385) FirstEnergy 12,979 3,371 (6,177) Hess 13,285 795 (6,132) Petrobras 47,417 26,114 (4,838) Perrigo Co 10,391 655 (4,013) ConocoPhillips 53,195 4,403 (3,615) Caesars Entertainment 1,804 308 (3,569) California Resources 302 403 (3,554) Endo International 2,523 524 (3,347)

### Netflix: Cash flow vs Net Income

##### Negative Cash Flows and Postive Net Income

Please See below Netflix Cash Flow from Operations and Net Income. Netflix Net Income is Postive, however, its Cash Flows is Negative. Why?

source: ycharts

Let us have a look at Netflix Cashflow from Operating Activities.

We note that additions to streaming content assets in Netflix is an (\$8,653 million in 2016) and has led to Negative Cash Flow from Operating Activities.

### Negative Cash Flows and Postive Net Income Examples

Below are some examples of top companies with Negative cash flows and Positive net income.

 Name Market Cap (\$ mn) CFO (\$ mn) Net Income (\$ mn) UBS Group 65,183 (16,706) 3,252 CarMax 11,844 (468) 627 Credicorp 17,180 (438) 1,056 Oaktree Capital Group 7,301 (318) 195 General Electric 227,086 (244) 8,831 Enstar Group 3,939 (203) 265 SLM 4,900 (201) 250 Hilltop Holdings 2,614 (183) 146 TRI Pointe Group 2,139 (158) 195 White Mountains Insurance 3,932 (155) 413

### Conclusion

The basic difference between net income and the net cash flow is following –

• First of all, in the case of net income, it doesn’t matter whether the transactions are in cash or not. That means when the net income and revenues are reported on the income statement when they are earned. But in the case of cash flow statement, we only deal with the (how much cash comes in and how much cash goes out during a period).
• Second, some expenses which are considered in the income statement (like depreciation expenses or amortization expenses) are not actually cash expenses. But still, they are deducted from the revenue. In the case of , they should be added back to the net income to have no effect on the cash flow.
• Third, in the case of net income, even the profits and losses of other sources (consolidated income statement) are considered. But in the case of cash flow statement, they don’t add or reduce the cash.

### Recommended Articles

This has been a guide to Cash flow vs Net Income. Here we discuss key differences between cash flow and net income with top examples like Apple, Snap Inc, Netflix, and Pearsons. You may also have a look at the following articles –