Cash flows are better than accounting profit

Cash flows are better than accounting profit because accounting profit can be manipulated with the help of accounting policies whereas the little can be done with cash flows.

The user can understand the cash flow more easily than accounting profit as accounting profit involves many technicalities where the cash flow are prepared on simple concept of cash inflows and cash flows. This simple concept improves the understanding of user.

 Cash flow give a better view of organization activities that where the cash is being spent.it also give an idea that how the cash is being generated by the organization. Therefore cash flow give you an ideas about the strength of organization.

Cash also give you an idea about the liquidity position of the entity. The liquidity is important factor to support operations. This sufficient funds give a confidence to equity holder that entity have sufficient fund to run its operations.

Cash flow also give a long term direction of the organization by pattern of expenditure. if entity investing in fixed assets and launching new project it means that entity has long term growth strategy but if entity in investing in working capital it means that entity is more focused on existing business.

Cash flow also put a light on important payment like interest , loan and dividend. if the organization is paying these amount this shows the organization ability to fulfill its commitment and there is no apparent reason of default.