"Profit is a poor substitute for cash flow." Which two of the following examples accurately apply to that statement?
A) Profit only affects incremental aspects of cash flow.
B) Profit rather than cash flow is crucial for long term increases in investor value.
C) Working capital adjustments may be needed to modify the profit figures for NPV analysis.
D) Depreciation is not a cash flow and should be excluded.

Question

Quizplus · Accepted Answer

Choice C acknowledges that working capital adjustments may be necessary to accurately reflect cash flow despite reported profits, while choice D recognizes that depreciation is a non-cash expense that shouldn't be included in cash flow analysis. Together, these choices support the idea that profit does not necessarily equate to strong cash flow. Choice A is incorrect because profit affects cash flow more broadly than just incrementally, and choice B is incorrect because a focus on profit over cash flow can actually harm investors in the long run.

"Profit Is a Poor Substitute for Cash Flow