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...