Question

Remember the Income Statement demonstrates a company's profitability whereas the Statement of Cash Flows reflects the...


Remember the Income Statement demonstrates a company's profitability whereas the Statement of Cash Flows reflects the entity's liquidity. Which do you think an investor should give greater weight when deciding if the company is sound?

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Answer #1

Income statement demonstrate performance of the company and profitability. Whereas statement of cash flow show how the company generates cash (by classifying operation activities, Investing activities and financing activities) and liquidity of the company.

Investor shall give more weigh to Income statement because jt shows performance of the company and obviously any investor wants to invest his money in company which performs well and in a consistent manner.

Creditors give more weight on statement of cash flow to ensure liquidity to repayment of their dues.

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