Question

c.   Provide a brief explanation of the difference between cash flow and profit.

Answer 1

Cash Flow is the actual Cash and Cash Equivalent generated from operating activities, finance activities and investing activities. It is true measure of liquidity. Cash Flows cannot be manipulated by accounting manipulations. Free cash flow is used to calculate intrinsic value of operations.
Profit is revenue deducted by cost, depreciation, interest and tax. It can be manipulated by accounting manipulations. Profit can be notional and may not be actually realised. Manipulation in inventory practices and depreciation practices can be used to inflate or deflate profit. Profits should not be used to calculate intrinsic value of operations.