To my knowledge, cash as a measure is more desirable than profit but it seems my information is old...

Question

To my knowledge, cash as a measure is more desirable than profit but it seems my information is old perhaps. Therefore, some of you will try to help me by discussing the limitations of both cash and profit as performance measures? What are their limitations and which is more able to predict the future performance of companies?

Robert · Accepted Answer

Introduction:- 
It might be possible that your cash flow is negative but the company is profitable and it might also 
be possible that the cash flow is positive but the company is making loss. A company normally works 
on accrual basis than the actual basis. This means that the profit is calculated when it occurs and not 
when actual cash is received. 
Profit:- 
Profit is the excess amount received after all the expenses are deducted from the revenue. It is the 
amount the company earns by performing day to day operations of the company. It helps company 
knows how much is the revenue earned with respect to the expenses incurred. If the company is 
profit and the growth prospects are high. 
Limitiations:- 
1. The major limitation for profit is that it can be manipulated as it also considers non cash flows 
items like depreciation expense or written off goodwill or write off advertisement expense. As it 
is quite possible that the companies are out of business though they are earning huge profits. 
On the other hand,

To my knowledge, cash as a measure is more desirable than profit but it seems my information is old perhaps. Therefore, some of you will try to help me by discussing the limitations of both cash and...

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