In the sentence below, two phrases or words are missing. Which two would you pick, from the list underneath?
Profit is______________, whilst cash flow is________________.
As you may have guessed, the right answer is: Profit is a an opinion, whilst cash flow is a fact.
Why is that so?
A company’s profit after tax is quite a subjective figure. It’s calculated according to various accounting ideas and hypotheses, regarding expenses and revenues.
Cash flow, on the other hand, is an objective figure – a single figure – not influenced by personal interpretation.
More on cash:
What You Need to Know About Cash Flow