Was reviewing Slack’s Q2 Earnings report when I saw that their Operating Income (both GAAP based and non-GAAP based) is negative, while their Operating Cash Flow is positive (~$11M). This seems to be a big gap, and I was wondering why that might be?
More generally, under what circumstances might operating cash flow be positive while operating income is negative?
Earnings report link (for reference): https://investor.slackhq.com/news/news-details/2020/Slack-Announces-Second-Quarter-Fiscal-Year-2021-Results/default.aspx
I think that S2000magician explained the difference very well.
Let me add this, though: ‘Operating Income’ is an accounting measurement that is easily manipulated because it arises from Income Statement accounts; it can be changed by changing the assumptions that underlie the accounting within those accounts.
Changes in Operating Cash Flow, in contrast, arise from Balance Sheet accounts. Those tend to change on a basis that is relative to the size (measured in revenues) of the business. Now, if Inventory isn’t managed closely and/or if Receivables aren’t collected timely and consistently, Operating Cash Flow will change. Well-managed businesses, however, understand this, and that is why they closely monitor the levels of both Inventory and Receivables.
Thank you.
I honestly didn’t expect that.