is cash a more reliable performace measure than net earnings?
2007-01-27 13:20:09 · 8 answers · asked by Anonymous in Business & Finance ➔ Investing
Look into the Cash flow statement if you are an American, you will find that net income or earnings is a source of cash. So if one is a depentent on the other so both are important.
2007-01-28 03:19:36 · answer #1 · answered by Mathew C 5 · 0⤊ 0⤋
I would say these 2 factors are as the same importance to choose a company. With cash means there is healthy cash flow to pay off for operating expenses and other expenses. Net earnings will indicate the perfomance of sales by the company. Beside these factors, there are still more factors to consider. The total financial leverage, current ratio etc. Past performance may not be indicative of the future success of a company. It is still vunerable to market changes. Eg a product has been obsoleted this year by a reserach from the competitor.
2007-01-28 01:24:20 · answer #2 · answered by Dang 3 · 0⤊ 0⤋
Hmm..
Not really.. in 1999, Chrysler had 15 billion dollars in CASH. A year and a half later, they lost so much money they had to fire 20,000 workers.
A lot of companies with tons of cash decide to give it to shareholders in the form of dividends, like Microsoft did, and a lot of other big companies, because idle cash is usually a target of unwarranted lawsuits or a reason for labor to demand a big raise, or the company starts to look for rivals to buy out. If a company invests the cash in growth instead, it tends to keep the shareholders happy
2007-01-27 21:26:54 · answer #3 · answered by PH 5 · 2⤊ 0⤋
Not really since a company has cash tied up in investments and other assests. There's not a big return on cash whereas investing in items that will help the company succeed may lead to big returns. The company has to do something with it's cash or it eventually won't have any.
2007-01-27 21:28:08 · answer #4 · answered by Mariposa 7 · 0⤊ 0⤋
There are a lot of good answers here already. One other thing I noticed since the company I work for is in "acquisition mode" is that the amount of cash available is largely indicative of the board/executives willingness to SPEND their hard-earned money, what I call being very conservative with their money. One of our latest acquisitions, I noticed, spent "their" money very freely. Just very different management styles.
2007-01-28 17:14:31 · answer #5 · answered by Sassygirlzmom 5 · 0⤊ 0⤋
No, but I believe free cash flow is a good indicator for future prospects of a company.
2007-01-28 00:30:23 · answer #6 · answered by jeff410 7 · 0⤊ 0⤋
classic_adelle
No it isn't necessarily. Too much cash isn't always good because it is money that isn't earning anything for you.
High earnings are signs of a strong company that is likely to increase in value.
2007-01-27 21:24:49 · answer #7 · answered by Anonymous · 0⤊ 0⤋
PH has hit the nail on the head.
2007-01-27 21:29:24 · answer #8 · answered by soul_plus_heart_equals_man 4 · 0⤊ 0⤋