Question

Discuss the circumstances where a firm might see net income as more important than operating cash flow and vice-versa.

Answer 1

circumstances where a firm might see net income as more important than operating cash flow

1) Comparing inter companies earning capacity

2) While computing return of the company net income is more appropriate

3) While computing return on equity

circumstances where a firm might see operating cash flow as more important than net income

1) When valuing company using DCF

2) When there is one time item in profit and loss accounts

3) Assessing cash flow requirements