Difference Between Cash Flow & Sales Revenue (2024)

FAQs

Difference Between Cash Flow & Sales Revenue? ›

Key Takeaways. Revenue is the money a company earns from the sale of its products and services. Cash flow is the net amount of cash being transferred into and out of a company. Revenue provides a measure of the effectiveness of a company's sales and marketing, whereas cash flow is more of a liquidity indicator.

Revenue is the money a business earns by selling its services and products, and cash flow is the net total of money transferred out and into the company. While revenue indicates the value of a company's marketing and sales, cash flow indicates the cash available to the business.

The cash flow to sales ratio, also known as the operating cash flow to sales ratio or OCF/sales ratio, shows a business's current cash flow after all capital expenditures related to sales costs have been subtracted. Essentially, it analyzes operating cash flow against current sales revenue.

First, while sales revenue only shows the gross amount of money coming into a company through sales, cash flow shows the total amount of money both coming into a company and moving out of it.

In this example, cash flow is more important because it keeps the business running while still maintaining a profit. Alternately, a business may see increased revenue and cash flow, but there is a substantial amount of debt, so the business does not make a profit.

Key Takeaways

Revenue is the entire income a company generates from its core operations before any expenses are subtracted from the calculation. Sales are the proceeds a company generates from selling goods or services to its customers.

Key differences between sales and revenue

For example, an organisation's total revenue could include income from a collection of interest or investments, liquidated assets or donations in addition to its sales. The sources of the income usually are only inclusive of the cash flow from sales or service transactions.

A higher ratio can also mean more investors and better credit terms from financial institutions. In general terms, an operating cash flow to sales ratio of 10% to 55% is considered good, with a higher number indicating a better ability to convert sales directly into cash.

The operating activities in the cash flow statement include core business activities. In other words, this section measures the cash flow from a company's provision of products or services. Examples of operating cash flows include sales of goods and services, salary payments, rent payments, and income tax payments.

The operating activities on the CFS include any sources and uses of cash from business activities. In other words, it reflects how much cash is generated from a company's products or services. These operating activities might include: Receipts from sales of goods and services.

What makes up revenue? ›

Revenue is the money generated from normal business operations, calculated as the average sales price times the number of units sold. It is the top line (or gross income) figure from which costs are subtracted to determine net income. Revenue is also known as sales on the income statement.

Revenue, also known simply as "sales", does not deduct any costs or expenses associated with operating the business. Profit is the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs.

A business may have revenue in a given time period that includes invoices they have sent out to customers, as well as cash payments that have been made at the time of a purchase. All of these sales are included as revenue during that time period.

So, is cash flow the same as profit? No, there are stark differences between the two metrics. Cash flow is the money that flows in and out of your business throughout a given period, while profit is whatever remains from your revenue after costs are deducted.

There are several circ*mstances in which a company's free cash flow (FCF) could be consistently much higher than its net income. Some reasons include: Non-Cash Expenses: Net income includes non-cash expenses such as depreciation and amortization, which reduce profitability but do not impact cash flow.

Cash flow positive vs profitable: Cash flow is the cash a company receives and pays, but profit is the total revenue after disbursing all business expenses. Although being cash flow positive in most situations implies that the company is incurring profits, the two aren't the same.

Understanding Cash Flow

Cash flow refers to the money that goes in and out of a business. Businesses take in money from sales as revenues (inflow) and spend money on expenses (outflow).

Free Cash Flow = Net income + Depreciation/Amortization – Change in Working Capital – Capital Expenditure. Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital. Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash.

Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations. Profit, which is typically called net profit or the bottom line, is the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs.