What it means in practice
The report should identify its period and whether the result is before or after tax and other relevant items. A net profit figure does not establish the cash available for withdrawal. Customers may not have paid, inventory may have absorbed money and borrowing repayments may fall outside some profit measures. Use the accounts and cash forecast together when deciding what the business can afford. Before comparing net profit between reports, check which expenses and adjustments are included. A figure before tax is not directly equivalent to one after tax. Exceptional items can also obscure the recurring trading position. Ask for a reconciliation where the definition changes. The result is most useful when management can explain both the amount reported and the operating conditions that produced it.
A fictional worked example
A fictional report shows ₦100,000 profit while a major customer's ₦300,000 invoice remains unpaid. The profit does not make that receipt available.
A useful question
What obligations and timing differences stand between reported profit and available cash?
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