One of the best ways of remembering this is to look at forge groups's last annual report. Whilst profits were up resulting in eps of 75 cents odd, operating cash flow was significantly down. In accounting, a company can book revenue without any cash flowing in, e.g credit sales , therefore if the customers do not pay , bad debts rise . Therefore it is important to look at balance sheet points such as, accounts receivables, inventory and accounts payables. A combination of all these three can give a cash conversion ratio or cycle, the shorter the better. Revenue is vanity, profit is sanity , cash is reality.
