The Importance of Cash Flow

Posted by James Hutchinson Feb 22, 2009

Cash is so important in Accounting that the Cash Flow Statement is a required schedule for Audited Statements. Nothing is a bigger factor in whether a company succeeds than if they have enough cash.

Companies with large cash balances are more likely takeover targets, because everyone wants that cash.

I like to read Robert Kiyosaki of Rich Dad, Poor Dad fame. He offers basic financial advice in easy to read terms. That said, he is not an accountant, and many of his ideas are pretty questionable. I don’t necessary subscribe to his investment advice, but he has pretty much built a career on one major idea.

That idea is to acquire assets that produce cash flow. He’s even developed a game by that name. He’s not so much interested in the accounting definition, but likes to see checks coming in every day. It’s a little hard to argue with that basic concept. It’s worked for him, at least by the revenue generated from his books.