Question

Why the cash flow earned by a firm will usually be different than the accounting earnings?...

Why the cash flow earned by a firm will usually be different than the accounting earnings?

When valuing an asset, should you use the accounting earnings or the cash flow that the asset will give?

is it true that if Boeing shares are sold in the NYSE by any investor the proceeds go to Boeing?

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Answer #1

The cash flow earned by the firm will be different from the accounting earnings as the timing of recording is different. The cash flow is recorded when the transaction has occured whereas accounting earnings are recorded before the transaction actually takes place.

For valuing an asset, the cash flows should be considered as it will give the better picture about the value of the asset. The accounting earnings are pre-recorded or expected earnings that the firm is expected to earn from the asset.

If the shares of any company are sold then the investor earns money by the sale. If the sale has been done at a gainful position then the investor will earn profits and vice versa. Thus, the statement is false. The investor will get the proceeds and not the company.

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