How is Net Income different from Cash Flow?

Net Income is what is left after operating expenses are subtracted from gross income and is shown on an income statement.  Cash Flow basically takes the net income and subtracts uses and adds sources to that net income.   Uses include increasing assets or reducing liabilities, while additions to cash flow come from decreasing assets or increasing liabilities.

An abbreviated quick test of cash flow takes net income and adds back interest, depreciation, income taxes and amortization (EBIDTA) and then subtracts required loan principal and interest payments.  This helps determine required cash flow activity for debt service coverage, but does not tell the entire story.  For your business inventory may grow, equipment be purchased or other balance sheet changes made.   Share your numbers and projections with your advisors so you and they understand the difference in your net income from your cash flow.