Operating cash flows rather than accounting income are listed in table 12.1. why do we focus on cash flows as opposed to net income in capital budgeting

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Business

Celeste Tucker

6 October, 08:15

Operating cash flows rather than accounting income are listed in table 12.1. why do we focus on cash flows as opposed to net income in capital budgeting

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Clay Lambert · Answer 1

Only cash can be spent or invested and since accounting profits do not represent cash, they are for less fundamental importance than cash flows for investment analysis. Recall in the stock valuation chapter we focused on dividends, which represents cash flows rather than earnings per share.