Question

If a company has good
net profit, positive cash flow, higher equity ,less liabilities , what exactly does that mean and how it is beneficial??

Answer 1

If the Company has good Profit,Positive cash flow and Equity is greater than liabilities it means Company is a sound Company.Net Profit is the indicator of the financial profitability of the Company, if the Company has good Profit,it can distribute higher dividends to its shareholders.Positive cash flow means that avialble of Cash after paying all cash liabilities. If the Company has enough cash Inflow it can use these cash to pay dividends to its shareholder’s.Higher Equity less liabilities means that Company can acquired funds for business through issue of shares rather than borrowing.Borrowing are required to pay fixed amount of interest but it is not in case of Equity.So Company can use its Profit and cash flow to paying dividend to its shareholders.Crditors and outside financial institutions can also satisfied that its amount can be repaid in time.