Why can a profitable company run out of cash?

The cash flow statement starts with the cash at the start of the year and shows every pound in and out until the cash at the end.

Profit is calculated on an accruals basis: a sale counts when it is made, even if the customer pays two months later, and a cost counts when it is incurred, even if the bill is paid next year. Cash is simply money in and money out of the bank.

Three things open the gap. First, timing: money owed by customers, stock on the shelves and unpaid supplier bills all sit between a sale and the cash. Second, long-lasting assets: when a company buys an oven or a building, the cash goes out at once but the cost is spread over many years of profit as depreciation. Third, payments that are not costs in themselves: repaying a loan, paying a dividend or paying down the capital on a lease take cash, while the profit and loss account shows a different charge, or none.

So a company growing fast, building new sites, repaying debt or paying generous dividends can see its cash fall in a year when it is making a profit. If the cash runs out before new money comes in, it cannot pay its bills, however profitable it looks.

Greggs made £167.4m of pre-tax profit in the year to 27 December 2025. Its trading brought in even more cash than that: £383.7m was generated from operations. After £31.5m of tax and £15.2m of net interest, mostly on its shop leases, £337.0m of cash came in from operating activities.

Then it spent. £263.3m went on property, plant and equipment and £22.1m on software and other intangible assets: £285.4m of capital spending, up from £240.9m in 2024. The annual report calls 2025 the peak year of its capital investment, as it developed the logistics sites that will support a larger shop estate.

Next, payments to shareholders and landlords. Greggs paid £70.3m in dividends and £63.3m off its lease liabilities, which is most of the rent on its shops. It borrowed £40.0m and repaid £15.0m, and raised £1.6m from selling shares to staff schemes. In all, £107.0m left through financing.

Add it up and £54.5m more went out than came in. Cash fell from £125.3m to £70.8m. Very little of that spending reduced profit in 2025: new equipment is charged against profit as depreciation over its life, lease costs are charged as depreciation and interest rather than as the payments themselves, and dividends are not a cost at all.

The accounts include a reconciliation that starts with profit after tax, £122.2m, and adjusts it to cash generated from operations, £383.7m. Most of the difference is costs that reduce profit but take no cash in the year.

The biggest is depreciation and amortisation: £160.6m, made up of £90.7m on property and equipment, £65.2m on the right-of-use assets that represent leased shops, and £4.7m on software. That is the cost of assets bought in earlier years, spread over their lives. Tax (£45.2m) and net finance costs (£16.3m) are added back too, because the cash paid for them is shown separately.

Working capital added cash. Greggs owed its suppliers £31.6m more at the end of the year than at the start, which kept cash in the business, while customers and others owed it £7.4m more and stock rose by £0.4m. Together those three lines added £23.8m.

Working capital is the money tied up in running the business day to day: stock waiting to be sold, plus receivables (money customers owe), less payables (money the company owes its suppliers).

When a company sells on credit, the sale and the profit count straight away but the cash arrives later. If it is growing, it has to buy more stock and wait for more customers to pay, so cash goes out before it comes back. A business can grow itself out of cash this way while every sale is profitable.

Greggs is the opposite case. Its customers pay at the till, and it pays suppliers later, so its suppliers in effect fund part of its trading. Its balance sheet shows £347.7m due within a year against £195.9m of current assets. That works while sales keep coming in; if sales fell sharply, the bills would still be due.

Working capital is where to look when cash and profit drift apart for a company that is not spending heavily on new assets: rising stock or rising receivables mean profit is being earned but not yet collected.

In the cash flow statement, usually after the balance sheet and the statement of changes in equity. It is split into operating, investing and financing activities and ends with the cash at the year end, which usually matches the cash line on the balance sheet or is reconciled to it in a note. A note nearby reconciles profit to cash from operations.

Not every company publishes one. Small companies do not have to, and many subsidiaries that are included in their parent's group accounts are exempt from preparing their own. For those, compare cash on the balance sheet this year and last: it tells you whether cash went up or down, but not why.

Every Spark Intel profile shows the company's cash at the year end alongside its profit, and links to the filing both come from.