Finance 01: Cash, profit and a cup-sealing machine

Four things you just saw

Scenario 1
In day-to-day operations, cash and operating results can move together.
Scenario 2
Buying equipment can reduce cash sharply at once, while its full cost does not enter profit all at once.
Scenario 3
The value of the same machine depends on whether it changes business results.
Scenario 4
Earning money does not mean you can afford a purchase today.

Names for these differences

Cash ≠ Profit
Why?
Profit describes performance over a period; cash is what is in the box right now. Buying equipment in scenario 2 and waiting for settlement in scenario 4 both separate the two.
Capital expenditure (CapEx) ≠ Today’s expense
Why?
The equipment’s ¥5,000 is paid in full on the purchase day (CapEx). Its cost enters profit as ¥250 × 20 days of depreciation.
EBIT ≠ EBITDA
Why?
EBITDA is the operating result before depreciation; EBIT deducts it. Quiet shop: ¥280 and ¥30. Busy shop: ¥1,420 and ¥1,170.

Finance 01 · Episode summary

When money leaves the cash box and when—and how much—it enters profit are two different questions. Next, see why payment for a sale can arrive later than the profit is recorded.

Next · Finance 02 · Sold, but not paid yet (Chinese) →

Back to Finance series (Chinese)

What this episode cannot establish

Each daily settlement increases cash by exactly that day’s EBITDA in this model. Sales and day-to-day expenses settle the same day; receivables, payables, inventory and tax are omitted. Cash and EBITDA often differ substantially in real companies—the subject of the next episode.
Depreciation runs for ¥250 × 20 days so the change can be seen within a few days. Real equipment is depreciated under accounting policies, usually over years.
The model has no borrowing, installments or interest, so scenario 4 requires waiting until enough cash accumulates. Real businesses have other options, each with its own costs.

Change the conditions

Want to change demand, staffing and equipment yourself and see how the numbers move?

Change the conditions · Planned

Concepts on this page

Open a concept for Chinese, Japanese and English terms and an explanation.

CashView details

中文: 现金
日本語: 現金
English: Cash

Money available at a point in time, distinct from cash flow over a period.

ProfitView details

中文: 利润
日本語: 利益
English: Profit

Revenue less the corresponding expenses over a period. These simplified lessons omit interest and income tax; profit is not always equivalent to EBIT.

Capital expenditure CapExView details

中文: 资本性支出
日本語: 資本的支出
English: Capital expenditure (CapEx)

Spending to acquire or improve long-lived assets. Payment affects cash, while cost is generally allocated over use through depreciation or amortization.

In this lesson：Pay ¥5,000 when buying the sealer; its cost enters profit over 20 days.

DepreciationView details

中文: 折旧
日本語: 減価償却
English: Depreciation

Allocating the depreciable cost of a tangible asset over its useful life. Recording depreciation does not itself require another cash payment.

In this lesson：Recognize ¥250 a day. No cash is paid again for that day’s depreciation.

Earnings before interest and taxes EBITView details

中文: 息税前利润
日本語: 利払前・税引前利益
English: Earnings before interest and taxes (EBIT)

Earnings after expenses including depreciation, before interest and taxes. Finance 01 uses it as its simplified book profit.

In this lesson：Scenario 2: ¥280 − ¥250 = ¥30.

Earnings before interest, taxes, depreciation and amortization EBITDAView details

中文: 息税折旧摊销前利润
日本語: 利払前・税引前・減価償却前利益
English: Earnings before interest, taxes, depreciation and amortization (EBITDA)

EBIT with depreciation and amortization added back. It is not cash flow: collection timing, inventory and capital spending still affect cash.

Four things you just saw

Finance 01 · Episode summary

Concepts on this page

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