Should a company focus on cash flows or accounting profits when making a capital expenditure decision?
Using the incremental cash flows and discounting them to reflect the time value of money is the preferred method. The two most common techniques involved in discounting cash flows are net present value and internal rate of return.
While the discounted cash flow models are the ideal, I would also want to forecast or project the impact on the company’s future financial statements. Therefore, I would also calculate and understand the effect on the accounting profits resulting from the capital expenditure.
Learn more about Evaluating Business Investments.
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Depreciation
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i want to knowe the difference accounting&financial accounting
company shoui focus on cash flow
company shouid focus on cash flow
company should focus on cash flow, acounting profit is speculative but cash flow is actuals
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Well this question needs more then a simple answer, because we have to analyze the situation of the company in the moment that it has to do this expenditure and how important this expenditure is. Cash flow show to us the flexibility of the company, how fast it cash money for every expenditure made, and the accounting profits shows how good its activity is and is it worth to continue or not. So, for my opinion both are important, but the accounting profit is the most correct to be focus on
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