Operating cash flows rather than accounting income are listed in Table 12.1. Why do we focus on cash flows as opposed to net income in capital budgeting?
To explain: The reason to focus on cash flow instead of net income in capital budgeting.
Introduction:
Operating Cash Flow:
The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.
Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.
So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.
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