Which is more important - net income or cash provided by operations? Why?
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1.) Which is more important - net income or cash provided by operations? Why?
2.) What are the reasons for and risks of international diversification?
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Solution Summary
Your tutorial is 650 words and eight references and argues that cash flow is the most important and why.
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Cash flow from the operating activity is most important activity:
1. It indicates the efficiency of the operations of the business, it reflects the cash effects of transactions that create revenues and expenses.
2. It indicates the relationship with the net income.
3. Evaluation on the parameters like liquidity, solvency is done on the cash flow from the operating activity.
Thus cash flow is recorded the transaction when cash is exchanged, whereas accrual indicators record a financial flow at the time economic value is created, transformed, exchanged, transferred or extinguished, whether or not cash is exchanged at the time. Thus there can be higher profits due to accrued income and vice versa. Hence cash flow is more important as its more accurate.
Reasons for international diversification
Organizations continuously look for opportunities to exploit the current products in the international markets. This helps in reducing the dependence on the single country. International Diversification helps in reducing the overall risk of the corporation. It is often more effective than domestic diversification in reducing company's risk in relation to its expected return because the economic cycles of different countries do not tend to be completely ...
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