In evaluating investment decisions, cash flows are considered to be more relevant than profitability associated with the project. Explain why this is the case.

CPA-Financial-Management-Section-3 Revision kit

Why cash flows are considered to be more relevant for the following reasons:
They are not affected 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 accounting standards They are also easier to measure/ascertain.
It is in line with shareholders wealth maximization objects

(Visited 144 times, 1 visits today)
Share this on:

Leave a Reply

Your email address will not be published. Required fields are marked *