Proof of cash

Totalling the cash actually received over a period and comparing it with the revenue reported for the same period, to see whether reported sales turned into money.

Example

Booked revenue of 4,200,000 against 3,780,000 of customer receipts leaves a 420,000 gap, which is 10.0% of the year.

Important

A gap is a question, not a verdict - it can be ordinary timing or revenue that will never be collected. The value is that the question exists at all, which it does not until somebody adds up both documents.

Related terms

  • Quality of earnings — How reliably reported profit turns into actual cash, most simply measured as operating cash flow divided by net profit.
  • Primary source — A document that originated outside the transaction and was created for some purpose other than persuading you - bank statements, filed returns, signed contracts, public registers.
  • Cash flow statement — The statement explaining how the bank balance moved over a period, split into cash from operating the business, cash spent on or received from long-term assets, and cash raised from or returned to lenders and owners.

Lessons that explain it

  • What you were told, what you inferred, and what you checked — Almost everything that later turns out to be wrong was never actually verified - it was assumed, because it arrived alongside things that were true. (10 min)
  • Runway is cash in the bank divided by what really leaves each month — Diligence recalculates burn and runway from bank statements rather than from management's summary, separating gross burn from net burn and cash held from cash promised. (10 min)

All 578 terms in the Investing glossary