Financial Analysis for HR Managers: Tools for Linking HR Strategy to Business Strategy

4. Cash Flows: Timing Is Everything

What’s the difference between operating profit and cash flow from operations? When measuring profits you make a series of timing adjustments. For example, you define top-line revenues as total sales during the period even if you have not yet collected all the cash from those sales. You subtract from that number only the cost of the merchandise sold during that period, even if you paid your suppliers for that merchandise and other merchandise that is still in inventory. Similarly you don’t subtract from the current period’s revenues the full amount paid to purchase long-term assets. You allocate, or depreciate, those costs over an estimate of the economic life of that asset. Those timing assumptions are all ...