What is the difference between operating cash flow and net income?

Cash flow and net income statements are different in most cases, because there is a time gap between documented sales and actual payments. The situation is under control if the invoiced customers pay in cash during the next period. If the payments are postponed further, there is a larger difference between net income and operative cash flow statements. If the trend does not change, the annual report may demonstrate equally low total cash flow and net income.

Usually, rapidly developing companies report low net income as they invest in improvement and expansion. In the long run, high operating cash flow brings a stable net income raise, though some periods may show net income decreasing tendency.

Constant generation of cash inflow is more important for a company's success than accrual accounting. Cash flow is a better criterion and barometer of a company's financial health. Managers and investors can avoid many traps if they pay more attention to operating cash flow analyses.

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Reviewing The Cash Flow From Operations

Cash Flow Statement: Reviewing The Cash Flow From Operations
By Michael Schmidt |
Updated March 5, 2018



Operating cash flow is cash that is generated from the normal operating processes of a business. A company's ability to consistently generate positive cash flows from its daily business operations is highly valued by investors. In particular, operating cash flow can uncover a company's true profitability. It’s one of the purest measures of cash sources and uses.

The purpose of drawing up a cash flow statement is to see a company's sources of cash and uses of cash, over a specified time period. The cash flow statement is traditionally considered to be less important than the income statement and the balance sheet, but it can be used to understand the trends of a company's performance that can't be understood through the other two financial statements.

While the cash flow statement is considered the third most important of the three financial statements, investors find the cash flow statement to be the most transparent, so they rely on it more than the other financial statements when making investment decisions.



The Cash Flow Statement

Operating cash flow, or cash flow from operations (CFO), can be found in the cash flow statement, which reports the changes in cash versus its static counterparts: the income statement, balance sheet and shareholders’ equity statement. Specifically, the cash flow statement reports where cash is used and generated over specific time periods and ties the static statements together. By taking net income on the income statement and making adjustments to reflect changes in the working capital accounts on the balance sheet (receivables, payables, inventories), the operating cash flow section shows how cash was generated during the period. It is this translation process from accrual accounting to cash accounting that makes the operating cash flow statement so important.

The cash flow statement is broken down into three categories: cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. In some cases, there is a supplemental activities category as well. These are segregated so that analysts develop a clear idea of all the cash flows generated by a company’s various activities.

1. Operating activities: records a company's operating cash movement, the net of which is where operating cash flow (OCF) is derived.

2. Investing activities: records changes in cash from the purchase or sale of property, plants, equipment or generally long-term investments.

3. Financing activities: reports cash level changes from the purchase of a company’s own stock or issue of bonds, and payments of interest and dividends to shareholders.

4. Supplemental information: basically everything that does not relate to the major categories.




Breakdown of Activities
Operating activities are normal and core activities within a business that generate cash inflows and outflows. They include:

• total sales of goods and services collected during a period;
• payments made to suppliers of goods and services used in production settled during a period;
• payments to employees or other expenses made during a period.

Cash flow from operating activities excludes money that is spent on capital expenditures, cash directed to long-term investments and any cash received from the sale of long-term assets. Also excluded is the amount that is paid out as dividends to stockholders, amounts received through the issuance of bonds and stock, and money used to redeem bonds.

Investing activities consist of payments made to purchase long-term assets, as well as cash received from the sale of long-term assets. Examples of investing activities are the purchase or sale of a fixed asset or property, plant, and equipment, and the purchase or sale of a security issued by another entity.

Financing activities consist of activities that will alter the equity or borrowings of a company. Examples of financing activities include the sale of a company's shares or the repurchase of its shares.


Calculating Cash Flow
To see the importance of changes in operating cash flows, it’s important to understand how cash flow is calculated. Two methods are used to calculate cash flow from operating activities: indirect and direct, which both produce the same result.

Direct Method: This method draws data from the income statement using cash receipts and cash disbursements from operating activities. The net of the two values is the OCF.
Indirect Method: This method starts with net income and converts it to OCF by adjusting for items that were used to calculate net income but did not affect cash.


Direct vs. Indirect Method
The direct method adds up all the various types of cash payments and receipts, including cash paid to suppliers, cash receipts from customers and cash paid out in salaries. These figures are calculated by using the beginning and end balances of a variety of a business accounts and examining the net decrease or increase of the account.


The exact formula used to calculate the inflows and outflows of the various accounts differs based on the type of account. In the most commonly used formulas, accounts receivable are used only for credit sales and all sales are done on credit. If cash sales have also occurred, receipts from cash sales must also be included to develop an accurate figure of cash flow from operating activities. Since the direct method does not include net income, it must also provide a reconciliation of net income to the net cash provided by operations.

In contrast, under the indirect method, cash flow from operating activities is calculated by first taking the net income off of a company's income statement. Because a company’s income statement is prepared on an accrual basis, revenue is only recognized when it is earned and not when it is received. Net income is not a perfectly accurate representation of net cash flow from operating activities, so it becomes necessary to adjust earnings before interest and taxes (EBIT) for items that affect net income, even though no actual cash has yet been received or paid against them. (See What is the difference between EBIT and cash flow from operating activities?) The indirect method also makes adjustments to add back non-operating activities that do not affect a company's operating cash flow.

The direct method for calculating a company's cash flow from operating activities is a more straightforward approach in that it reveals a company's operating cash receipts and payments, but is more challenging to prepare since the information is difficult to assemble. Still, whether you use the direct or indirect method for calculating cash from operations, the same result will be produced.



Operating Cash Flows
OCF is a prized measurement tool as it helps investors gauge what’s going on behind the scenes. For many investors and analysts, OCF is considered the cash version of net income, since it cleans the income statement of non-cash items and non-cash expenditures (depreciation, amortization, non-cash working capital and changes in current assets and liabilities). OCF is a more important gauge of profitability than net income, as there is less opportunity to manipulate OCF to appear more or less profitable. With the passing of strict rules and regulations on how overly creative a company can be with its accounting practices, chronic earnings manipulation can easily be spotted, especially with the use of OCF. It is also a good proxy of a company’s net income; for example, a reported OCF higher than NI is considered positive, as income is actually understated due to the reduction of non-cash items.



AT&T Cash Flow Statement showing cash from operating activities.

Above are the reported cash flow activities for AT&T (T
) for its fiscal year 2012 (in millions). Using the indirect method, each non-cash item is added back to net income to produce cash from operations. In this case, cash from operations is over five times as much as reported net income, making it a valuable tool for investors in evaluating AT&T's financial strength.



The Bottom Line
Operating cash flow is just one component of a company’s cash flow story, but it is also one of the most valuable measures of strength, profitability and the long-term future outlook. It is derived either directly or indirectly and measures money flow in and out of a company over specific periods. Unlike net income, OCF excludes non-cash items like depreciation and amortization which can misrepresent a company's actual financial position. It is a good sign when a company has strong operating cash flows with more cash coming in than going out. Companies with strong growth in OCF most likely have more stable net income, better abilities to pay and increase dividends, and more opportunities to expand and weather downturns in the general economy or their industry.

If you think “cash is king,” strong cash flow from operations is what you should watch for when analyzing a company.



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Cash Flows from Operating Activities

This is how much money the company received from its actual business operations.

This does not include cash received from other sources, such as investments. 

To calculate the cash flow from operating activities, the company starts with net income (from the income statement), then adds back in any 

• depreciation expenses, 
• deferred taxes, 
• accounts payable and accounts receivables, and 
• one-time charges.

http://www.investorguide.com/article/11625/the-three-parts-of-cash-flow-statements-explained-igu/

How To Evaluate The Quality Of EPS and find out what it's telling you about a stock.

Examining Earnings Quality

Overview  

The evaluation of earnings per share should be a relatively straightforward process, but thanks to the magic of accounting, it has become a game of smoke and mirrors. This, however, does create opportunities for investors who can evaluate the quality of earnings over the long run and take advantage of market overreactions.

EPS Quality  

High-quality EPS means that the number is a relatively true representation of what the company actually earned (i.e. cash generated).  But while evaluating EPS cuts through a lot of the accounting gimmicks, it does not totally eliminate the risk that the financial statements are misrepresented. While it is becoming harder to manipulate the statement of cash flows, it can still be done.

A low-quality EPS number does not accurately portray what the company earned.  A reported number that does not portray the real earnings of the company can mislead investors into making bad investment decisions. 

How to Evaluate the Quality of EPS

The best way to evaluate quality is to compare operating cash flow per share to reported EPS. While this is an easy calculation to make, the required information is often not provided until months after results are announced, when the company files its 10-K or 10-Q with theSEC.

To determine earnings quality, investors can rely on operating cash flow. 

1.  Positive earnings but negative Operating cash flow.

• The company can show a positive earnings on the income statement while also bearing a negative cash flow. 
• This is not a good situation to be in for a long time, because it means that the company has to borrow money to keep operating. And at some point, the bank will stop lending and want to be repaid. 
• A negative cash flow also indicates that there is a fundamental operating problem: either inventory is not selling or receivables are not getting collected.
• "Cash is king" is one of the few real truisms on Wall Street, and companies that don't generate cash are not around for long.

2.  Operating cash flow > earnings 

• If operating cash flow per share (operating cash flow divided by the number of shares used to calculate EPS) is greater than reported EPS.
• In this case, earnings are of a high quality because the company is generating more cash than is reported on the income statement. 
• Reported (GAAP) earnings, therefore, understate the profitability of the company.

3.  Operating cash flow < earnings

• If operating cash flow per share is less than reported EPS, it means that the company is generating less cash than is represented by reported EPS. 
• In this case, EPS is of low quality because it does not reflect the negative operating results of the company.
• Therefore, it overstates what the true (cash) operating results. 

Trends Are Also Important

Because a negative cash flow may not necessarily be illegitimate, investors should analyze the trend of both reported EPS and operating cash flow per share (or net income and operating cash flow) in relation to industry trends.

• It is possible that an entire industry may generate negative operating cash flow due to cyclical causes.
• Operating cash flows may be negative also because of the company's need to invest in marketing, information systems and R&D. In these cases, the company is sacrificing near-term profitability for longer-term growth.

Evaluating trends will also help you spot the worst-case scenario, which occurs when a company reports increasingly negative operating cash flow and increasing GAAP EPS. 

• As discussed above, there may be legitimate reasons for this discrepancy (economic cycles, the need to invest for future growth), but if the company is to survive, the discrepancy cannot last long. 
• The appearance of growing GAAP EPS even though the company is actually losing money can mislead investors. This is why investors should evaluate the legitimacy of a growing GAAP EPS by analyzing the trend in debt levels, times interest earned, days sales outstanding and inventory turnover.

The Bottom Line

Without question, cash is king on Wall Street, and companies that generate a growing stream of operating cash flow per share are better investments than companies that post increased GAAP EPS growth and negative operating cash flow per share. 

Earnings increasing and Operating cash flow increasing > Earnings increasing but negative operating cash flow

The ideal situation occurs when operating cash flow per share exceeds GAAP EPS. 

Operating cash flow > Earnings

The worst situation occurs when a company is constantly using cash (causing a negative operating cash flow) while showing positive GAAP EPS. 

Positive Earnings but negative operating cash flow.

Luckily, it is relatively easy for investors to evaluate the situation. 

http://www.investopedia.com/articles/analyst/03/091703.asp

An Example
Let's say that Behemoth Software (BS for short) reported that its GAAP EPS was $1. Assume that this number was derived by following GAAP and that management did not fudge its books. And assume further that this number indicates an impressive growth rate of 20%. In most markets, investors would buy this stock.

However, if BS's operating cash flow per share were a negative 50 cents, it would indicate that the company really lost 50 cents of cash per share versus the reported $1. This means that there was a gap of $1.50 between the GAAP EPS and actual cash per share generated by operations. A red flag should alert investors that they need to do more research to determine the cause and duration of the shortfall. The 50 cent negative cash flow per share would have to be financed in some way, such as borrowing from a bank, issuing stock, or selling assets. These activities would be reflected in another section of the cash flow statement.

If BS's operating cash flow per share were $1.50, this would indicate that reported EPS was of high quality because actual cash that BS generated was 50 cents more than was reported under GAAP. A company that can consistently generate growing operating cash flows that are greater than GAAP earnings may be a rarity, but it is generally a very good investment.

The Essentials Of Corporate Cash Flow (3)

Digging Deeper into Cash Flow
All companies provide cash flow statements as part of their financial statements, but cash flow (net change in cash and equivalents) can also be calculated as net income plus depreciation and other non-cash items.

Generally, a company's principal industry of operation determine what is considered proper cash flow levels; comparing a company's cash flow against its industry peers is a good way to gauge the health of its cash flow situation. A company not generating the same amount of cash as competitors is bound to lose out when times get rough.

Even a company that is shown to be profitable according to accounting standards can go under if there isn't enough cash on hand to pay bills. Comparing amount of cash generated to outstanding debt, known as the operating cash flow ratio, illustrates the company's ability to service its loans and interest payments. If a slight drop in a company's quarterly cash flow would jeopardize its loan payments, that company carries more risk than a company with stronger cash flow levels.


Unlike reported earnings, cash flow allows little room for manipulation. Every company filing reports with the Securities and Exchange Commission (SEC) is required to include a cash flow statement with its quarterly and annual reports. Unless tainted by outright fraud, this statement tells the whole story of cash flow: either the company has cash or it doesn't.


What Cash Flow Doesn't Tell Us
Cash is one of the major lubricants of business activity, but there are certain things that cash flow doesn't shed light on. For example, as we explained above, it doesn't tell us the profit earned or lost during a particular period: profitability is composed also of things that are not cash based. This is true even for numbers on the cash flow statement like "cash increase from sales minus expenses", which may sound like they are indication of profit but are not.

As it doesn't tell the whole profitability story, cash flow doesn't do a very good job of indicating the overall financial well-being of the company. Sure, the statement of cash flow indicates what the company is doing with its cash and where cash is being generated, but these do not reflect the company's entire financial condition. The cash flow statement does not account for liabilities and assets, which are recorded on the balance sheet. Furthermore accounts receivable and accounts payable, each of which can be very large for a company, are also not reflected in the cash flow statement.

In other words, the cash flow statement is a compressed version of the company's checkbook that includes a few other items that affect cash, like the financing section, which shows how much the company spent or collected from the repurchase or sale of stock, the amount of issuance or retirement of debt and the amount the company paid out in dividends.

The Bottom Line
Like so much in the world of finance, the cash flow statement is not straightforward. You must understand the extent to which a company relies on the capital markets and the extent to which it relies on the cash it has itself generated. No matter how profitable a company may be, if it doesn't have the cash to pay its bills, it will be in serious trouble.

At the same time, while investing in a company that shows positive cash flow is desirable, there are also opportunities in companies that aren't yet cash-flow positive. The cash flow statement is simply a piece of the puzzle. So, analyzing it together with the other statements can give you a more overall look at a company' financial health. Remain diligent in your analysis of a company's cash flow statement and you will be well on your way to removing the risk of one of your stocks falling victim to a cash flow crunch.

by Investopedia Staff
Investopedia.com believes that individuals can excel at managing their financial affairs. As such, we strive to provide free educational content and tools to empower individual investors, including thousands of original and objective articles and tutorials on a wide variety of financial topics.


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Analyze Cash Flow The Easy Way

Analyze Cash Flow The Easy Way

Posted: Jan 17, 2007
Richard Loth


If you believe in the old adage, "it takes money to make money," then you can grasp the essence of cash flow and what it means to a company. The statement of cash flows reveals how a company spends its money (cash outflows) and where the money comes from (cash inflows). (To read more about cash flow statements, see What Is A Cash Flow Statement?, Operating Cash Flow: Better Than Net Income? and The Essentials Of Cash Flow.)


We know that a company's profitability, as shown by its net income, is an important investment evaluator. It would be nice to be able to think of this net income figure as a quick and easy way to judge a company's overall performance. However, although accrual accounting provides a basis for matching revenues and expenses, this system does not actually reflect the amount the company has received from the profits illustrated in this system. This can be a vital distinction. In this article, we'll explain what the cash flow statement can tell you and show you where to look to find this information.

Difference Between Earnings and Cash
In an August 1995 article in Individual Investor, Jonathan Moreland provides a very succinct assessment of the difference between earnings and cash. He says "at least as important as a company's profitability is its liquidity - whether or not it's taking in enough money to meet its obligations. Companies, after all, go bankrupt because they cannot pay their bills, not because they are unprofitable. Now, that's an obvious point. Even so, many investors routinely ignore it. How? By looking only at a firm's income statement and not the cash flow statement."

The Statement of Cash Flows
Cash flow statements have three distinct sections, each of which relates to a particular component - operations, investing and financing - of a company's business activities. For the less-experienced investor, making sense of a statement of cash flows is made easier by the use of literally-descriptive account captions and the standardization of the terminology and presentation formats used by all companies:

Cash Flow from Operations: This is the key source of a company's cash generation. It is the cash that the company produces internally as opposed to funds coming from outside investing and financing activities. In this section of the cash flow statement, net income (income statement) is adjusted for non-cash charges and the increases and decreases to working capital items - operating assets and liabilities in the balance sheet's current position.

Cash Flow from Investing: For the most part, investing transactions generate cash outflows, such as capital expenditures for plant, property and equipment, business acquisitions and the purchase of investment securities. Inflows come from the sale of assets, businesses and investment securities. For investors, the most important item in this category is capital expenditures (more on this later). It's generally assumed that this use of cash is a prime necessity for ensuring the proper maintenance of, and additions to, a company's physical assets to support its efficient operation and competitiveness.

Cash Flow from Financing: Debt and equity transactions dominate this category. Companies continuously borrow and repay debt. The issuance of stock is much less frequent. Here again, for investors, particularly income investors, the most important item is cash dividends paid. It's cash, not profits, that is used to pay dividends to shareholders.

A Simplified Approach to Cash Flow Analysis
A company's cash flow can be defined as the number that appears in the cash flow statement as net cash provided by operating activities, or "net operating cash flow", or some version of this caption. However, there is no universally accepted definition. For instance, many financial professionals consider a company's cash flow to be the sum of its net income and depreciation (a non-cash charge in the income statement). While often coming close to net operating cash flow, this professional's short-cut can be way off the mark and investors should stick with the net operating cash flow number.

While cash flow analysis can include several ratios, the following indicators provide a starting point for an investor to measure the investment quality of a company's cash flow:

Operating Cash Flow / Net Sales: This ratio, which is expressed as a percentage of a company's net operating cash flow to its net sales, or revenue (from the income statement), tells us how many dollars of cash we get for every dollar of sales.

There is no exact percentage to look for but obviously, the higher the percentage the better. It should also be noted that industry and company ratios will vary widely. Investors should track this indicator's performance historically to detect significant variances from the company's average cash flow/sales relationship along with how the company's ratio compares to its peers. Also, keep an eye on how cash flow increases as sales increase; it is important that they move at a similar rate over time.

History of Free Cash Flow: Free cash flow is often defined as net operating cash flow minus capital expenditures, which, as mentioned previously, are considered obligatory. A steady, consistent generation of free cash flow is a highly favorable investment quality – so make sure to look for a company that shows steady and growing free cash flow numbers.

For the sake of conservatism, you can go one step further by expanding what is included in the free cash flow number. For example, in addition to capital expenditures, you could also include dividends for the amount to be subtracted from net operating cash flow to get to get a more comprehensive sense of free cash flow. This could then be compared to sales as was shown above.

As a practical matter, if a company has a history of dividend payments, it cannot easily suspend or eliminate them without causing shareholders some real pain. Even dividend payout reductions, while less injurious, are problematic for many shareholders. In general, the market considers dividend payments to be in the same category as capital expenditures - as necessary cash outlays.

But the important thing here is looking for stable levels. This shows not only the company's ability to generate cash flow but it also signals that the company should be able to continue funding its operations. (To read more about cash flow, see Free Cash Flow: Free, But Not Always Easy, Taking Stock Of Discounted Cash Flow and Discounted Cash Flow Analysis.)

Comprehensive Free Cash Flow Coverage: You can calculate a comprehensive free cash flow ratio by dividing the comprehensive free cash flow by net operating cash flow to get a percentage ratio - the higher the percentage the better.

Free cash flow is an important evaluative indicator for investors. It captures all the positive qualities of internally produced cash from a company's operations and subjects it to a critical use of cash - capital expenditures. If a company's cash generation passes this test in a positive way, it is in a strong position to avoid excessive borrowing, expand its business, pay dividends and to weather hard times.

The term "cash cow," which is applied to companies with ample free cash flow, is not a very elegant term, but it is certainly one of the more appealing investment qualities you can apply to a company with this characteristic. (Read more about cash cows in Spotting Cash Cows.)

Conclusion
Once you understand the importance of how cash flow is generated and reported, you can use these simple indicators to conduct an analysis on your own portfolio. The point, like Moreland said above, is to stay away from "looking only at a firm's income statement and not the cash flow statement." This approach will allow you to discover how a company is managing to pay its obligations and make money for its investors.

Read more: http://www.investopedia.com/articles/stocks/07/easycashflow.asp#ixzz1hPqfkDZZ

Graphic representation of Cash Flows

Strong Cash Flows




Competitive Dividends


http://www.faqs.org/sec-filings/091210/NORTHWESTERN-CORP_8-K/ex99-1_westcoastpres.htm

Cash Flow Statement Classifications

http://pointsandfigures.com/2010/04/26/more-on-the-dodd-bill-courtesy-of-the-oracle-of-omaha/

Cash Flow Computation

Cash Flow Computation
The total cash flow for a period can be computed as:


Income from Operations (*see below)
+ Depreciation
- Taxes
- Capital Spending
- Increase in Working Capital
------------------------------
Total (Free) Cash Flow


Explanation:

Income from operations equals revenue minus costs and expenses and is the major source of cash.  

However, two adjustments must be made to get to actual cash inflow:

• Income from operations is before taxes are deducted, so taxes need to be subtracted here to get a corrected cash flow,
• Also, depreciation charges are included in income from operations but do not lower cash in the period, so depreciation is added back to get a corrected cash flow.

Finally, only changes (up or down) to the components of working capital (inventory, receivables, payables, etc.) in the period are part of computing cash flow.  If working capital has increased, cash is required this will need to be subtracted from total cash flow.

(Additional note:  The total cash flows used in an NPV (net present value) analysis should come from well-prepared proforma financial statements developed for the project.  The total project cash flows for a period can be computed as above.)

----

Income Statement

for the period x through y

Net Sales

- Cost of Goods Sold

-------------------------

Gross Profit

Sales & Marketing

Research & Development

General & Administrative

--------------------------

Operating Expenses

Gross Profit

- Operating Expenses

-------------------------

Income from Operations*

+ Net Interest income

- Income taxes

-------------------------

Net Income

How changes in Working Capital affect Cash

How changes in Current Liabilities affect cash

Increase in accounts payable (a bigger liability) generates cash.

• Suppose the company you're watching has a $45 million increase in cash from accounts payable.
• There is $45 million in cash floating around in the business that didn't show up in net income.
• Let's suppose that one large item was purchased for $45 million. An accounting expense was incurred when the payable was created, but no cash has yet been used to pay the bill. It's still in the bank.
• So while the expense was incurred, reducing earnings, the cash wasn't paid and, at least for now, there's more cash in the business.

Increase in current liabilities provide cash.

Decrease in current liabilities use cash.

How changes in Current Assets affect cash

In different financial statements, it is common to see account receivable, inventories and accounts payables either providing or using cash.

Increases in current assets (other than cash) use cash.

Decreases in current assets (as in a net decrease in inventory) provide cash.

Cash Flow from Operations

Net Income
----------
Operating Activities, Cash Flows Provided By or Used In:

Depreciation
Adjustment to Net Income
Changes in Accounts Receivable
Changes in Liabilities
Changes in Inventories
Changes in Other Operation Activities
----------
Total Cash Flow from Operating Activities



Cash flow from operations, CFO, tells what cash is generated from, or provided by, normal business operations, and what cash is consumed, or used in the business.

Net income from continuing operations is the starting point, to which cash adjustments are made.

To that figure, add (or subtract) what was called the "adjustments to reconcile net income to net cash provided by operating activities."

The first adjustment item is depreciation.

• For example, depreciation in Company X was $24 million. So, we known that without other adjustments, $24 millionn more in cash was generated than reported as net income, because depreciation was subtracted from net income, but not from cash flow because it isn't a cash expense.

Then a catch-all "Adjustments to Net Income" category.

After this, comes:

• "Changes In Accounts Receivables"
• "Changes in Liabilities"
• "Changes in Inventories"

Finally, you arrive at a total "Total Cash Flow from Operating Activities," derived by netting the adjustments to toal income.

• This is a very important figure. Essentially, this is cash generated by ongoing day-t0-day business activities.
• If this amount is negative, that's bad, because it means that the business isn't even supporting itself on a day-to-day basis and requires an infusion of cash.
• If it's positive - we're still not out of the woods yet - capital investments may still require more cash than the business is producing.