Bar Bulletin

Bar Bulletin

Why Cash (Flow) Is King and How Profits Can Deceive You

July 2021 Bar Bulletin

By Al Davis

Many equate the success of a company to its reported profits. While profits are good, they do not represent the financial standing of any given company. It is quite possible for a company to report profits while simultaneously going out of business. It is also possible for a company to be profitable but unable to grow, to secure financing or to attract investors. There are several reasons why cash flow is a better indicator of a company’s financial health.

Profit numbers are easier to manipulate as they often include such non-cash items as depreciation or goodwill write-offs. Under generally...

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