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close this bookBasic finance for marketers. (Marketing and Agribusiness Texts - 1) (1997)
close this folderChapter 3 - Cash flow accounting
View the document(introduction...)
View the documentChapter objectives
View the documentStructure of the chapter
View the documentAim of a cash flow statement
View the documentStatements of source and application of funds
View the documentFunds use and credit planning
View the documentKey terms


It can be argued that 'profit' does not always give a useful or meaningful picture of a company's operations. Readers of a company's financial statements might even be misled by a reported profit figure.

Shareholders might believe that if a company makes a profit after tax of say $100,000, then this is the amount which it could afford to pay as a dividend. Unless the company has sufficient cash available to stay in business and also to pay a dividend, the shareholders' expectations would be wrong. Survival of a business depends not only on profits but perhaps more on its ability to pay its debts when they fall due. Such payments might include 'profit and loss' items such as material purchases, wages, interest and taxation etc, but also capital payments for new fixed assets and the repayment of loan capital when this falls due (e.g. on the redemption of debentures).