Question

1. In the income statement, do you think potential investors in your business will be more interested in earnings (net income) or cash flow? Why do you think that?

2. Two common ratios that provide similar information to an enterprise are the Current Ratio and Quick Ratio.

1）What basic information do these ratios provide, that is, which category do these ratios fall into?

2）Suppose a camping product retailer has a liquidity ratio of 2.7. What does this say about the company in general? Suppose the quick ratio of the enterprise is 0.75:1. What does this mean? Is it possible for an enterprise to have a flow and a quick ratio of these two values? Why is that?

Answer 1

Solution :-1

According to me Potential Investors in the business will be more interested in Earnings not in the Cashflow. As we know Cashflow comes by adding up the non cash expenses. Means it does not include non cash expenses . thats why we say cashflow is something more than actual profit . But many potential investors are interested in cashflow as it is impossible to manipulate cashflow but the Net Profit can be changed or manipulate by the way of window dressing .

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