Build a Profit-to-Cash Bridge
Explain operating cash flow by bridging from profit to working-capital cash movements.
April net income is $180,000. Depreciation is $25,000. Accounts receivable increased $140,000, inventory increased $55,000, and accounts payable increased $25,000. Operating cash starts with net income, adds back non-cash expense, then adjusts for working capital. The common mistake is treating lower operating cash as proof that the P&L profit is fake. The better move is to bridge the two statements and identify which cash timing items explain the gap. Step 1 Start with net income: $180,000. This is the P&L performance base. It tells what the business earned under accounting rules. Step 2 Add back depreciation: +$25,000. Depreciation reduced profit…
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