Cash flows and accounting profits

Why cash flows and accounting profits are not considered the same thing.

E

Expert

##### Verified

Stock value depends on future cash flows, their timing, and their riskiness.  Profit calculations do not consider these three aspects. Profit in accounting, is simply the difference between sales revenue and expenses.  It is true that more profits are generally better than fewer profits, and when the run for small-term profits adversely affects the size of future cash flows, their timing, or their riskiness, and then these profit maximization efforts are detrimental to the firm.

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