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Guide To Analysing Companies, Fifth Edition by Bob Vause

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4 The cash flow statement

A COMPANY’S INCOME STATEMENT can show a healthy profit for the year, but this does not guarantee that it has the cash necessary to survive. Profit is not cash. Profit is an accounting measure; cash is a physical item. In the 1970s and 1980s many apparently profitable companies failed because of a lack of cash. This increased pressure for financial reports to give more emphasis to a company’s cash flows, liquidity and borrowings. Thus the cash flow statement became the third significant financial statement to be presented by companies in their annual reports. Cash flow statements were introduced in the United States in the late 1970s and the UK in the early 1990s.

No cash, no business

Profit is part fact, part ...

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