Why do we look at cash flow instead of net income?

When we use the DCF method (Discounted Cash Flow), the focus is right there in the name — we discount the future cash flows of the company to their present value.

So why not just use net income?
Because profit on paper doesn’t always mean cash in the bank.

A company can show a profit but still be in trouble if it can’t collect payments from customers. Maybe it sold products or services, but the money is tied up in long credit terms or unpaid invoices.

That’s why net income can sometimes be misleading on its own.

📉 A company might report a net loss but still have healthy cash flow — in that case, it’s worth looking deeper because the business might still be in a strong position to recover.
📈 On the flip side, a company could have positive net income but no cash coming in. Without external funding, that business could run out of money fast.

Net income tells you if the business is profitable. Cash flow tells you if it can actually operate.
In valuation — and in real life — you need both to get the full picture.

💬 At ORNA, we look beyond just one metric — because the story is always in the details.
If you want to know what your numbers are really saying, let’s talk.

#ORNA #DCF #BusinessValuation