The earnings of a firm are not equivalent to its cash flows.

Question

Quizplus · Accepted Answer

Earnings are calculated using the accrual basis of accounting, which means that they include non-cash transactions such as depreciation expenses and accounts receivable. Cash flows, on the other hand, represent the actual inflows and outflows of cash in a business. Therefore, while earnings may provide an indication of a company's profitability, cash flows provide a more accurate picture of its financial health.

The Earnings of a Firm Are Not Equivalent to Its