Profit is not cash

It must not be assumed that the profit displayed in the income statement is represented by cash at the year-end. A business may show a profit for the year, but this does not mean that it has cash available.
Profit is part fact, part opinion and occasionally part hope. Different assumptions, views and accounting treatment will produce different profits. Low profitability or loss-making operations may be distressing or embarrassing for management but not necessarily terminal for a business. Businesses can survive without profit as long as they have cash available. Even a profitable company cannot survive without cash.
Cash is used to pay employees, suppliers, interest, taxes, dividends and certainly investments in assets to support growth.
Although cash is essential in the running of any business, it is, except for any interest it may earn, a non productive asset that can be used to increase productive resources, or repay debt, thus reducing interest charges and improving profitability.
A business with shortage of cash may be in trouble.
A business with a lot of cash may not be operating as profitably as it could be.
 
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