Question

1/ Explain why investors are very concerned about cash flow, possibly more than income?

2/ Explain why aggressively pursing customers to pay their bills, while stalling payment of suppliers will improve the companies cash position, but may not be wise from a relationship standpoint.

Answer 1

1. Investors are concerned about the cash flow as it enables them to identify how much cash the company generates, especially from its Operational activities. It also represents the ability of the firm to meet its short term payment obligations. Cash flow form Operating activities, is an immediate indicator of the firm's position in the market, and a liquidity crunch may be an indicator of declining sales/ increasing and may affect the firm's ability to buy from the suppliers and hurt its operations.
Note: Income, on the other hand is a better reflector when investing for a longer period- i.e. greater than a year etc.

2. Aggressively pursuing customers to make their due payments and stalling payments to suppliers' would improve the firm's cash flow position, but affect its relationship with both the customer and the supplier. The ideal approach should be to match the cash inflows (from customers or sales) to cash outflows (to suppliers), thus maintaining a healthy liquidity position as well as maintaining sound relationships.
A strained relationships with suppliers or customers would make them more likely to switch to other rivals in the market, and also indirectly offer liberal conditions/ relaxations to other rivals.

Let me know if I have missed something. Will be happy to add/ discuss in case of any queries.