BufeticoSimpson Manufacturing makes the steel connectors and fasteners that hold wooden houses together. In 2021 it reported net income of $266.4 million, 42% more than the year before. The cash its operations brought in that year was $151.3 million, 27% less.
Net income went from $63.5 million in 2014 to $354.0 million in 2023, and in the twelve years to 2025 it fell only once, in 2024, by 9%. Between 2017 and 2025, cash from operations fell only twice: 27% in 2021 and 21% in 2024, when it went from $427.0 million to $338.2 million.
Most people who see two numbers moving apart conclude that one of them is wrong. Either the profit has been dressed up, or the business is burning money. At Simpson the filing supports neither, and it shows the difference between profit and cash flow line by line.
What each line counts
Profit is built on accruals, the accounting entries that record a sale and its cost when the goods change hands, whether or not any money has moved. Cash from operations counts the money that actually came in and went out. When they separate, the cash flow statement shows why, walking down from profit to cash.
Simpson’s 10-K for 2021 does that walk in one paragraph. It starts from $266.4 million of profit and adds back $71.3 million of charges that used no cash that year, such as depreciation. Then it subtracts $186.5 million that went into operating assets and liabilities, mainly $164.2 million more inventory and $68.0 million more owed by customers, partly offset by $50.5 million of costs recorded but not yet paid. What remains, after rounding, is the $151.3 million.
Where the profit went
Inventory carries most of it. Stock on hand went from $283.7 million at the end of 2020 to $443.8 million at the end of 2021, up 56% in a year when revenue grew 24%. The same filing says steel, its main raw material, cost more in 2021 than in 2020 and more than its historical levels. In North America, where most of its stock sits, pounds on hand fell 2% and the cost of each pound rose about 63%. So it held about the same steel at a much higher cost. It also raised its own prices through 2021, and part of what it billed at those prices had not been collected by December. A large part of the cash behind the year’s profit was sitting on the shelves.
In the first half of 2026 the inventory line ran the other way: stock fell from $594.2 million at the end of 2025 to $513.5 million at the end of June, and the cash flow statement counts $74.9 million of that as released. Receivables rose $138.4 million in the same six months, as the 10-Q says they usually do in the first three quarters, when construction picks up. So operating assets and liabilities together still used $42.5 million. Cash from operations of $248.5 million came in ahead of $215.3 million of profit because $75.7 million of charges used no cash. Cash also runs ahead when a company owes its suppliers more, as I found in the payables line of Builders FirstSource.
I went through both series year by year in the Simpson case study.
Where this breaks
Compute cash figures for thousands of companies, which is what I built Bufetico to do, and a company like Simpson breaks the quick readings of both lines.
A company can look steady on profit and be cyclical on cash. Any test that asks whether earnings fell would have called Simpson stable in 2021, when its cash fell by more than a quarter. The cycle ran through the price of steel, and the profit line did not show it.
Any single year of cash can be a year of stocking up or of drawing down, and the number alone does not tell you which. Read 2021 alone and the business looks weak. A half year adds the season on top: in the first six months of 2026, receivables at Simpson absorbed more cash than inventory released. A growth rate that starts or ends on one of those periods mostly measures what happened to stock and receivables. That is why I read cash across a run of years and look at the shape of the series.
Acquisitions add a problem of their own. In 2022 Simpson acquired Etanco, a European fastener maker, and inventory on the balance sheet rose from $443.8 million to $556.8 million. The operating section of the cash flow statement charges only $28.4 million to inventory, mainly because $107.2 million of stock came with the business and was paid for in the investing section. Subtract one balance sheet from the next, the obvious shortcut across thousands of companies, and the purchase gets charged to operations. The two methods rarely match exactly, and in an acquisition year they are not even close.
A growing pile of stock can also be product nobody is ordering, and the cash flow statement cannot tell the two apart. The 2026 inventory release could be discipline, or a company running down stock because orders slowed.
In 2009, with sales down 22.2% in a weak US housing market, Simpson’s net income fell by more than three quarters and its cash from operations more than doubled.