Why cash flows are considered to be more relevant for the following reasons:
They are not affected by the accounting policies adopted in preparing financial statements
Cash flows rather than profits determine the viability of any project
Accounting profits include some non-cash items such as depreciation which are irrelevant in the investment decision.
Cash flows are not affected by accounting standards They are also easier to measure/ascertain.
It is in line with shareholders wealth maximization objects
In evaluating investment decisions, cash flows are considered to be more relevant than profitability associated with the project. Explain why this is the case.
