The past 4 years of WeWork's pre-IPO financials show just how important cash flow is to the company's growth

WeWork's US and UK businesses show huge losses on paper, but the company has healthy positive cash flow.Cash-flow management appears to be a key part of the WeWork business model.That's important because WeWork's leases cost far more than the revenue the company is generating.Payments on those leases are deferred into the future — so the mismatch in costs and revenue isn't a problem right now.This story lays out WeWork's pre-initial-public-offering financials for the past four years in the US and the UK, based on every published document we could find.Visit Business Insider's homepage for more stories.As WeWork prepares to unveil its initial public offering, the office-rental company is hoping to convince investors that its growing business can also become a profitable one. It isn't, yet.But a look at four years' worth of financials from WeWork's US and UK businesses shows that the company has healthy positive cash flow, even though on paper it records huge losses. (We have published highlights from the accounts at the bottom of this story.)Neither the parent company (The We Company) nor its UK arms are profitable. In fact, their losses are massive. WeWork lost $1.9 billion in 2018 on revenue of $1.8 billion, according to an earnings presentation seen by Business Insider.Similarly, in the UK, the company lost £32 million, or about $42 million, on revenue of £118 million ($154 million) in 2017, the last year for which WeWork filed accounts in London. That year, the UK business represented roughly 14% of the company's $886 million in revenue, according to documents obtained by Business Insider from Companies House, the regulatory body for firms doing business in the UK. (WeWork UK is now named WeWork International, but they are the same entity.)Once WeWork's confidential IPO paperwork is finally made public in the US, the question on investors' minds will be whether the company will ever get into the black.When you look at WeWork's income statements, a profit can be difficult to imagineThe company's 2018 financial summary — which disclosed the $1.9 billion loss — doesn't mention the company's administrative expenses. The UK documents do show those expenses, however, and they are far in excess of the revenue it made in each of the three most recent years for which filings are available. Here are the top and bottom lines. (The exchange rate is $1.30 to £1):The We Company corporate parent in the US:2018 Revenue: $1.8 billionNet loss: $1.9 billion2017Revenue: $886 millionNet loss: $933 millionWeWork UK:2017Revenue: £118 millionOther income: £15 millionAdmin expenses: £163 millionNet loss (after all other items): £32 millionLoss as a percentage of revenue: 24%2016Revenue: £61 millionOther income: £13.5 millionAdmin expenses: £83 millionNet loss (after all other items): £11 millionLoss as a percentage of revenue: 15%2015Revenue: £12 millionOther income: £1.7 millionAdmin expenses: £28 millionNet loss (after all other items): £14.4 millionLoss as a percentage of revenue: 115%WeWork's cash-flow statements may be more important than its income sheetIn every year for which it has disclosed numbers, WeWork UK's admin costs have been larger than its revenue.Many companies run losses during their early years as they plow all their revenue, plus investors' cash, into growing their businesses. In WeWork's case, the losses are variable — as low as 15% of revenue and as much as 115%. So WeWork has some ability to control its losses.WeWork's cash-flow statements, however, show a different picture. They are brimming with positive returns.WeWork's cash on balance sheetGlobal corporate parent:2018: $6.6 billionUK only:2017: £9.8 million2016: £3.4 million2015: £4.5 millionThe distinction between an income statement and a cash-flow statement is technical and confusing. Essentially, the income statement is the company's formal attempt to match the expenses it paid to generate its revenue. By contrast, the cash-flow statement describes the actual movement of cash, in and out of its accounts, once credit and deferred bills are considered. It is possible for loss-making companies to actually make cash, for instance, if the company is able to generate cash from sales immediately but put off paying its bills into the future.How a company that loses money ends up with more cash at the end of the dayCash-flow management appears to be a key part of the WeWork business model, according to the UK financials. It also explains how, in 2017, a business that spent £163 million to generate only £133 million in revenue also managed to nearly triple its cash on hand.In that year, WeWork lost £32 million on its UK businesses. But it added £6.4 million in cash, increasing its balance sheet from £3.4 million at the beginning of the year to £9.8 million at the end. (The numbers may not add up because of rounding.)The major effect on WeWork's UK cash in 2017 came from two items:£49 million saved through unpaid bills (an “increase in trade and other payables,” to use the technical term).£80 million from “deferred lease liability.”That cash benefit, £129 million in total, more than makes up for WeWork's pro forma losses. And it offsets a hefty chunk of WeWork's £163 million in admin expenses.Cash up front, bills paid laterMost of those colossal “administrative expenses” are the acquisition of lease contracts on the buildings the company runs, according to an early disclosure. WeWork UK appears to be writing up large expenses against its revenue when it acquires a lease and then adding back cash savings to account for the fact that the lease payments are due over a period of years, not immediately. So WeWork recognizes a large lease expense on its income statement but saves cash because the actual payments are deferred into the future.Its customers (office tenants) must pay rent immediately, giving WeWork cash up front. But it appears that WeWork is not required to pay all its suppliers immediately, and they are pushed off into “payables,” due some time in the future. WeWork gets to keep the cash during the interim.WeWork's landlords also offer WeWork various credits and incentives for improving the buildings it rents, and those further offset the cost of leases.To be clear: There is nothing wrong with doing this. WeWork appears to be using a legitimate and smart business technique. The company declined to comment when reached by Business Insider.$3.66 billion in 'non-cancellable operating leases'There is one astonishing item in the notes to WeWork's 2017 UK numbers. It says that the company has £2.8 billion ($3.66 billion) in “outstanding commitments for future minimum lease payments under non-cancellable operating leases,” which are due mostly more than five years from now. (In 2017, WeWork UK paid £55 million in noncancelable lease payments.)That appears to mean that WeWork UK must eventually pay £2.8 billion to its landlords. That metric at the global corporate parent level should be revealed in its S-1 IPO filing with the US Securities and Exchange Commission. If the number is £2.8 billion for the UK arm, it will be vastly more than that for the whole company. In April, we reported that it was $18 billion.Keep scrolling for highlights from WeWork's past four years of accounts.