Cash - not profit - are king what does it mean, and why it's important? - Yahoo! Answers
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lion79 lion79
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August 20, 2006
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Cash - not profit - are king what does it mean, and why it's important?

if we assume cash is more important from profit , do investors follow this rule, do financial sites with stock and investing information follow this principle?
  • 3 years ago

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michael p by michael p
Member since:
February 18, 2006
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This means that cash on hand is important. You see, I can run a company pandering to investors looking for some earnings per share etc while running a company into debt. So while I may turn huge (taxable) profit, it really is not good for my company. I will still be in debt. One notable case of a company with huge cash reserves is Bershire hathaway. Now they could easily turn a massive profit and give dividends to their holders, but instead, they try to not turn large profits, and keep cash on hand. They have 40 billion in cash, and a AAA bond rating. This allows the company to grow, and be stable.
  • 3 years ago
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Other Answers (3)

  • siagnon by siagnon
    Member since:
    May 04, 2007
    Total points:
    1139 (Level 3)
    I think you can grasp the menaing by answer this question yourself:

    Which would you prefer, a real hard cash on hand or profit in form of numbers on a piece of paper (shown on company report)? The said profit may still be collectible ....
    • 3 years ago
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  • yeohbiz by yeohbiz
    Member since:
    April 04, 2007
    Total points:
    731 (Level 2)
    Cash is cash. Profit is potential cash. If you buy a stock and it appreciates in value, you have profit. But if you don't sell it, the profit is not realised.
    • 3 years ago
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  • John D by John D
    Member since:
    February 15, 2007
    Total points:
    204 (Level 1)
    I understand what you are saying, but it's important to go further. What is important isn't just cash, but free cash flow which is operating cash flow, less preferred dividends and capital expenditures. Free cash flow measures, in basic terms, a company's ability to pay dividends to its shareholders. Some analysts use FCF as a tool to value companies using a multiple quite similar to EBIT and EBITDA (earnings before interest, tax, depreciation and amortization). Both FCF and EBIT/EBITDA are important measures in valuing a company.
    • 3 years ago
    0% 0 Votes

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