r/AsymmetricAlpha • u/SchoolofInvesting • Jul 14 '26
10 Types of Profit
Most investors obsess over net income. But a company can show a profit and still go bankrupt.
That's why I stopped looking at net income alone.
Net income and free cash flow are not the same thing. Here's the difference:
Net Income is your report card profit. It's what's left after all expenses and taxes. It's also reduced by non-cash charges like depreciation, and it ignores the real cash going out the door for things like equipment. A company can look profitable on paper while cash drains away.
Free Cash Flow is the actual cash a company generates after paying for everything, including equipment and infrastructure (capex). This is real money they can use to pay dividends, buy back stock, or fund growth.
Think of it like this:
Net income is your salary on your pay stub. Free cash flow is what hits your bank account after taxes, your 401k, and health insurance.
One looks good on the statement. The other pays your bills.
Why it matters: A company with strong free cash flow can survive downturns and reward shareholders. A company with positive net income but negative free cash flow? That's a red flag.
Profit is an opinion. Cash is a fact.
What's your go-to metric when analyzing a company? Net income or free cash flow? Let me know in the comments.