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Money-less profits

The mismatch between profits and cash flows from operations could mean trouble. Here is a list of such companies

The profit-and-loss statement tells us the booked profit on an accrual basis. This means it may also state profits which are yet to be realised in cash but which are still considered as income for the current year. Therefore, it is important to analyse the cash-flow statement along with the profit-and-loss statement. The cash flow from operations gives the actual cash realised from the normal business of a company. Good-quality earnings should be backed by a healthy cash flow from operations in line with the EBITDA or operating profits.

The gap between profits and the cash from operating activities may be due to various reasons. One, it may be due to the sector in which the company operates. An example of such a sector is the real-estate sector, where the income is realised later and hence the cash flow is not commensurate with the profit booked. A second case is poor management of receivables and payables. In this case the company is not able to realise cash from its debtors on time and has to pay to the suppliers early. A continued huge difference between EBITDA and the cash flow from operations may escalate the working capital requirements and squeeze the liquidity.

We have compiled a list of companies which have shown profits as per the profit-and-loss statement but could not make cash from operations in the last three financial years. Although the quantum of difference as per cent of revenue may not be huge in some companies like L&T but they will have to start bringing in cash in the coming years to avoid working capital issues. We have excluded finance and banking companies because of their nature of the business.

Companies with profits but negative cash flow from operations (CFO)

Company nameEBITDA
FY14    FY13    FY12
FY14    FY13    FY12
Larsen & Toubro150681350211505-6963-4355-6227
Tube Investments284423271679-1872-3228-3094
PTC India872464458-1849-370-1152
Shrenuj & Company301284233-73-595-442
Sharon Bio-Medicine15912297-70-70-53
Marathon Nextgen475197-39-18-2
Ajmera Realty & Infra333049-82-21-24
All amounts in Rs crore