Why is cash flow more important than accounting income?
: Why is cash flow more important than accounting income? Cash flow to stockholders (in the form of dividends) is the only basis for valuation of the common stock shares. Since the goal is to maximize stock price, cash flow is more directly related than accounting income. Accounting methods recognize income at times other than when cash is actually received or spent. One more reason that cash flow is important: : One more reason that cash flow is important: When cash is actually received is important, because it determines when cash can be invested to earn a return. [Also: When cash must be paid determines when we need to start paying interest on money borrowed.] Examples of when accounting income is different from cash flow: : Examples of when accounting income is different from cash flow: Credit sales are recognized as accounting income, yet cash has not been received. Depreciation expense is a legitimate accounting expense when calculating income, yet depreciation expense is not a c
