🐰💬 Why do CFOs prefer talking about cash flow over profit?

On the surface, profit looks like the highest measure of success.

Because companies with profits on paper often look financially healthy.

But for the CFO, the real story isn't in the numbers on the balance sheet - it's in the real cash movement.

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Profits consist of what are several accounting things: depreciation, accrued income, or non-cash improvements. It can create the illusion of financial stability - until you have to pay for a supplier, an employee salary, or pay off an upcoming debt. Cash flow, on the other hand, is the pulse of a business: it shows how much money really goes in and out now.

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This difference creates an interesting tension. Companies may be "profitable" but have no cash at all. Risk of lack of liquidity. On the other hand, companies with low profits or temporary losses may have plenty of cash. Can move and invest confidently. Which is more important? The answer may not be as clear as it seems. CFOs must constantly walk the line between the sensuality of long-term profit and the necessity of short-term liquidity.

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Cash flow doesn't just mean survival; it gives it the power to decide - when to invest, whether to delay paying, how to run relationships with suppliers, or whether to risk opportunities that should be risked; profit tells the story of past results; while cash flow "whispers" to current potential and future prospects, reading between lines of cash can reveal strengths or weaknesses that profit alone cannot tell.

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Finally, the focus on cash flow is not to overlook profit, but to recognize that real financial health is in the relationship between numbers, time, and decision-making. This ambiguity gives the CFO the insight to act decisively when the time is most important.

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Are you buying a stock or owning a business, reading the cash flow game?

Source: - https://online.hbs.edu/blog/post/cash-flow-vs-profit

- https://www.unomaha.edu/nebraska-business-development-center/_files/publications/cash-flow.pdf

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