Why is cash more important than profit?

When valuing a company, one of the most common methods is Discounted Cash Flow (DCF). And as the name suggests, we look at cash — not profit.

A company can show strong revenue and profit margins on paper, but that doesn’t guarantee it has the cash in hand. For example:

• Customers may take longer to pay than suppliers demand.
• The company may be paying out cash faster than it collects.
• Inventory may pile up, locking cash in stock instead of liquidity.

This is why in business valuation, we focus on cash flows.
Sales and profit do matter, but without sufficient cash, even a profitable company can face trouble — or worse, bankruptcy. On the other hand, a company with modest sales and profit but steady cash flow can survive and even thrive.

💡 In short: Cash is the lifeline, profit is just the report card.

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#ORNA #BusinessValuation #Investment #DCF