Comments on: Profitability or Cashability ?

By: Lee Lee

Lee Lee — Fri, 20 Feb 2009 17:51:45 +0000

The use of FCF and cFACT indeed is gaining importance in present times when cash is king. Your expounding on the derivation of FCF and cFACT is extremely helpful to old schoolers who are not acquainted with FCF and cFACT. Great job!

By: Ujjal

Ujjal — Sun, 08 Feb 2009 05:18:56 +0000

No. Profit and Loss account accounting is neither erroneous nor does it require to be avoided. In fact it is a must. It is part of the system of double-entry accounting that we follow and under that system Balance sheet and P&L will be and must be generated. What I am saying is that for decision making purposes cash flow based performance indicators are better tools. While we look at P&L and related ratios, we must look at Cash Flow and cFACT based ratios to get a clearer picture and not get misled in cases of window dressed accounts.

By: Irene

Irene — Sun, 08 Feb 2009 04:18:48 +0000

Cash generated from business is real and fact based as against profit generated which is more of an accounting concept , has been established with clarity . However it gives rise to one query, was the profit based accounting system erroneous? or can a compromise be made between PBA [profit based accounting] and CBA [cash based accounting]?

By: Ujjal

Ujjal — Fri, 06 Feb 2009 05:16:05 +0000

In fact, cash flow based tools, like FCF, cFACT etc can be very effective management tools, far better than profit based tools. We should go one step further and evaluate all management KRAs by cash flow based parameters. Also to provide greater emphasis to cash flow statements, the Financials should have cash flow as page 1 followed by balance sheet and then P&L at the end – the reverse of the sequence followed currently.

By: Sada

Sada — Thu, 05 Feb 2009 12:35:25 +0000

Most of us have been calculating FCF year after year and that too from a ‘compliance’ perspective only, without actually using it as a tool for evaluation and never thought of going beyond that. You have provided a refreshing clarity with cFACT.