Question

Experts say operating cash flow per share is a better indicator of profitability than is earnings per share. Do you agree? Please state your point in a few clear concise sentences.

Answer 1

Answer :-

Yes , I agree that operating cash flow per share is a better indicator of profitability than is earnings per share because Operating Cash flow is a blood of the company. As everyone knows a company with out having cash flows can not survive. Although many investors have a motive of only of Earnings that is EPS But Operating Cash Flow per share is a better thing to measure the financial health of the company. As we know the Cash is a King.

Earning per share shows the profit it does not show that how this profit is earned. While the operating cash flow per year shows the true view that how the company is working , it shows its true profitability. It includes the profit through normal activities.

We can not say the operating cash flow as EBITDA while the EBITDA is sometimes called as cash flows. It is the real or actual earnings of the company . These earnings excludes the earnings from the way of investing decisions and also from the way of capital decisions

For example :- A company makes a sales of 10million in January but the amount will received after 30 days Now therefore the sale of 10million does not mean that it made a cash flows of 10millions If the payment received in the next month then now the Accrued earnings are greater than the cash flows and the amount of sale is included in debtors