A business sells goods today, records a profit, pays its supplier and waits sixty days to collect from its customer. During that gap, accounting profit and cash move in different directions. The SEC's guide to financial statements explains why the income statement and the cash-flow statement answer different questions.
Two views of one fictional month
| April item | Amount |
|---|---|
| 100 desks × $150 revenue | $15,000 |
| 100 desks × $90 direct costs | −$9,000 |
| Other operating costs | −$4,000 |
| Simplified operating profit | $2,000 |
| Cash collected from those customers by April month-end | $0 |
| Illustrative April operating cash movement | −$13,000 |
The −$13,000 is a movement before other cash flows, not the closing bank balance. Opening cash, tax, borrowing and other transactions are excluded. When customers pay, cash catches up to the invoices. The problem is surviving until then.
Growth can increase the amount tied up. If the fictional wholesaler doubles deliveries in May, it needs to fund more purchases before earlier invoices arrive. The margin on each order may remain positive while the lowest cash point falls. This does not make growth bad; it makes payment timing a financing question.
One common shorthand is inventory days + receivable days − payable days. In a separate illustrative calculation, 30 + 60 − 20 equals a 70-day cash conversion cycle. Real calculations vary by company; CDW's filed definition shows one version.
Build a thirteen-week forecast with likely receipt dates, supplier payments, payroll, tax, debt and planned investments. Watch the lowest balance, not only the period-end result. Then test slower collections and faster growth.