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Importance of Cash Flow Statements versus Traditional Financial Statements (Profit)
brighton banda, Financial Consultant, Zambia, Member
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What is the importance of cash flows in comparison to financial statements (profit)? (...) Read more? Sign up for free
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Cash Flow versus Financial Statement
Ledja Dhima, Manager, Albania, Member
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A financial statement is important because it shows company's profit. Sales minus expenses, equal to gross profit or profit before tax.
However it does not show whether is company is liquid or not (Liquidity). A profitable company is not necessary liquid. Cash flow shows a company's liquidity and tells you (the bank) how the company will generate cash (which sources mostly). The current crisis proved liquidity is the key factor of a company's business continuance.
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Cash Flows versus Profit in Financial Statements
juwele sibanda, Accountant, Zimbabwe, Member
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I agree with Ledja, rely on cash flow statement for your daily decisions:
- A profitable company can have serious challenges meeting short term liabilities.
- And a loss making company can still have a strong liquidity.
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Special Interest Group Leader
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