Cash Flow vs. Profit: Where should you Focus more?
Somebody has rightly mentioned that cash is the king and without the green (i.e. Cash) a business cannot function smoothly. Some time we get confused between the terms i.e. Cash flow Vs. Profit. Cash is necessary for daily operations i.e. For paying employee’s salary, incurring the operational costs, purchasing inventory and paying the taxes.
Positive cash flow indicates that a company’s liquid assets are increasing which enable any company to settle down the debts, return the money to shareholders and create a provision to meet the future contingencies. At the same time profit is the surplus after all expenses are deducted from revenue. Improve profit reflects the overall picture of a business growth and on the basis of which tax is calculated.