Unformatted text preview: profits than earnings because a company can show positive net earnings (on the income statement) and still not be able to pay its debts. Both operating income and operating cash flow are better indicators of a company’s profitability, therefore, comparing the two gives a better comparability and more reasonable results than comparing total net income and operating cash flow. In order to compare accruals between companies with different sizes, we divide the difference between operating income and operating cash flow by the beginning balance of the flowing year’s total asset (which is the ending balance of the present year’s total asset), because all else equal, the difference between operating income and operating cash flow should be larger for a large company than for a small company....
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- Spring '10
- Net Income, Generally Accepted Accounting Principles, Earnings before interest and taxes