In the black

An organization is said to be operating in the black when it is reporting a net profit. The term comes from the practice of using black ink when stating a profit on an income statement, versus the use of red ink when stating a loss. Being in the black does not necessarily mean that a firm is also experiencing positive cash flows; instead, it is possible that cash flows are negative, even though profits are being reported. This condition arises due to the requirements of accrual-basis accounting, which can result in revenues or expenses being recognized even though there are not yet any related cash flows.

The managers of public companies are particularly interested in operating in the black, since investors are more likely to be focused on the existence of profits, which can strongly influence an organization's stock price.

The term is sometimes used to denote that an individual or other entity has a positive net worth. Thus, a person is said to be in the black when he has more assets than liabilities.

Related Courses

The Interpretation of Financial Statements