Cash flow and net income are both important. If the cash flows are ignored, a company...

Cash flow and net income are both important. If the cash flows are ignored, a company could miss that they are cash poor and unable to attain business strategies and improvements that could end the business. If net income were ignored, it would also mean the main driver for stock prices could be overlooked and this could also be very harmful for a company.

What does everyone think about this statement? Do you agree or disagree?

Solutions

Expert Solution

I agree with the statement. Both cash flow statement and net income statement are important indicators of the performance of the business. The net income statement is important because it gives an idea about the actual profitability of the business. It considers the revenues from all sources irrespective of whether they have been received in cash or not. Similarly it considers the expenses from all different sources irrespective of whether actual payment has been made for them. Hence it gives the true profit making capacity of the business. It allows the analysts to analyze the profitability of the business with the help of Mia’s ratios such as operating profit ratio, interest coverage ratio and net income ratio.

The cash flow statement on the other hand gives an idea about the actual cash flows of the business. It displays the actual cash receipts and the actual cash payments which allows the analysts to analyze liquidity position of the business and to determine the actual cash flow.

jeff jeffy answered 7 months ago

Next > < Previous

Related Solutions

1. Which do you feel is more important, net income or net cash flow? Why? 2....

1. Which do you feel is more important, net income or net cash flow? Why? 2. What might a Cash Flow Statement tell you that an Income Statement would not? 3. The Cash Flow Statement has only been required in the United States since 1988. Why do you think it has risen in importance since then?

Which do you feel is more important, net income or net cash flow? Why? What might...

Which do you feel is more important, net income or net cash flow? Why? What might a Cash Flow Statement tell you that an Income Statement would not? The Cash Flow Statement has only been required in the United States since 1988. Why do you think it has risen in importance since then?

Why is it important to track cash flow by period. How can you modify net income...

Why is it important to track cash flow by period. How can you modify net income to approximate cash flow? What factors influence the timing of receipts when you have a collections policy for accounts receivable that comes in over time? How do you approximate the net cash flow for a project where the cash is commingled with the rest of the business?

8. The (net) cash flows of project C and D are shown below: Net Cash Flow...

8. The (net) cash flows of project C and D are shown below: Net Cash Flow ($) Year Project C Project D 0 -2,000 -1,000 1 3,000 650 2 125 1,500 a. Find the crossover rates. (1.5 point) b. The cost of capital is 12 percent. If C and D are mutually exclusive, which project should be accepted? Why? (0.5 point)

Determining Net Income from Net Cash Flow from Operating Activities Curwen Inc. reported net cash flow...

Determining Net Income from Net Cash Flow from Operating Activities Curwen Inc. reported net cash flow from operating activities of $193,000 on its statement of cash flows for the year ended December 31. The following information was reported in the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method: Decrease in income taxes payable $3,700 Decrease in inventories 9,300 Depreciation 14,300 Gain on sale of investments 6,400 Increase in accounts payable 2,600 Increase...

Is it possible for a company that has negative net income, negative operating cash flow, and...

Is it possible for a company that has negative net income, negative operating cash flow, and negative free cash flow to end the year with an increase in cash and an increase in stock price? Explain your answer. (Please write between 300-500 words)

Cash Flows from Operating Activities Net Income $ 539,000 Adjustments to reconcile net income to net...

Cash Flows from Operating Activities Net Income $ 539,000 Adjustments to reconcile net income to net cash from operating activities: Depreciation expense 63,400 Increase in net accounts receivable (376,000) Increase in inventory (396,000) Increase in accounts payable 102,000 Decrease in accrued liabilities (79,000) Increase in income taxes payable 24,000 Gain on sale of land (53,000) Loss on sale of investments 6,000 Net cash provided(used) by operating activities $(169,600) Cash Flows from Investing...

1 A. Determining Net Income from Net The section of the statement of cash flows that...

1 A. Determining Net Income from Net The section of the statement of cash flows that reports the cash transactions affecting the determination of net income.Cash Flow from Operating Activities Curwen Inc. reported net cash flow from operating activities of $357,500 on its statement of cash flows for the year ended December 31. The following information was reported in the Cash Flows from Operating Activities section of the A summary of the cash receipts and cash payments for a specific...

Cash Flows are extremely important in finance. Companies try to improve their cash flow by investing...

Cash Flows are extremely important in finance. Companies try to improve their cash flow by investing in projects (capital investments) more so in todays times during this recent crisis for a company being able to maintain their day to day operations. There are three parts of cash flow statements, operating, financing and investing activities. Every business not matter what and who they are are interested in their cash flow for obvious reasons. These numbers are usually forecasted by the company,...

Determining Net Income from Net Cash Flow from Operating Activities Sanhueza, Inc., reported a net cash...

Determining Net Income from Net Cash Flow from Operating Activities Sanhueza, Inc., reported a net cash flow from operating activities of $159,500 on its statement of cash flows for the year ended December 31, 2016. The following information was reported in the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method: Decrease in income taxes payable $3,400 Decrease in inventories 8,500 Depreciation 13,100 Gain on sale of investments 5,900 Increase in accounts payable...

Subjects