Financial question: Airline has lots of cash although low profits?

[Amelie090904]

Hi guys,

I have checked some airline stats and found this airline here (no name mentioned):

He had $100.000.000 profits last quarter, but has some $800.000.000 more in cash compared with the previous quarter. How is that possible? He was not scrapping aircrafts and hasn't sold aircrafts in high numbers either. So where does the money come from? Am I missing something? Only option I see is that he could have had a huge order of aircraft that he has now cancelled or new loans. But that was not the case. And as you can see this phenomenon is happening every quarter. Where is he getting his cash from?

Thanks for your answers!

[schro]

What does the cashflow portion of the financials look like?

Ninja edit: Actually, name the airline so I can look at all the details...

[schro]

Never mind. Found the airline.

It's due to depreciation which is a non-cash expense.

[Amelie090904]

Hmm, can you explain that to a noob please?

[freshmore]

When you own a plane that asset has a value, which counts towards your airline value. When new that asset might be worth 10 million and when you scrap it might be worth 1 million.

That means every quarter some of the value of that asset is lost, I.e. after one quarter it would be worth 9.5 million. This 500,000 difference is counted as a depreciation expense in Income Statement which lowers the profit. However it doesn't actually take any cash, it is just an asset with a lower value. Therefore the Cashflow will show a higher income (about 500,000) than the Income statement.

I think that covers it in some sort of way, someone may well be able to do better!

BTW all those figures are completely made up!

[Amelie090904]

I see. So his actual profits are way higher...thanks for your explanation!

[freshmore]

Sort of, his actual profits are as you see there, his Cash flow is way higher!

[schro]

Manual Reference: https://www.airwaysim.com/game/Manual/Office/Accounting/#Expense

I see. So his actual profits are way higher...thanks for your explanation!

Profits are not calculated on a "cash basis" in the game, they're calculated on an accrual basis. That means that income and expenses are recorded in the period that they are earned or incurred, not when they are paid to/from your airline. Prior to the accounting change (several years ago) when we were on a cash basis in game, a purchase of an airplane would have been expensed immediately and not written down over a period of time.  Depreciation is supposed to represent the pro-rated usage of a fixed asset over its lifespan....

Therefore, profits are not higher,  but cashflow is higher...