Cash flow analysis with Power BI: why is the company profitable but short on cash?

A company’s sales may be growing and its profit and loss statement may show strong results, while at the same time its cash balance is declining. This does not necessarily mean that the company’s performance is deteriorating – profit and cash flow reflect different aspects of financial performance.

Revenue and expenses are not always recognized in accounting at the same time as the related cash is actually received or paid. Because of these timing differences, some of the company’s cash is tied up in working capital. In addition, cash may be used for investments or other business needs.

Cash flow analysis is therefore useful not only for explaining changes that have already occurred. A company also needs to understand how much cash its core operations generate, where additional cash needs arise, how those needs are financed, and whether it will be able to meet its obligations on time. Historical analysis should also be complemented by forward-looking cash flow planning.