Like all good financial aphorisms, the notion that “profit is an opinion, while cash is a fact” contains a kernel of truth. It’s certainly a lot easier for companies to massage quarterly earnings than it is to lose track of how much cash they have in the bank. Ultimately, investors use projected cash flows to determine what a business is worth today, so it’s certainly worth paying attention to.
Yet the implosion of German electronic-payments processor Wirecard AG shows once again that it’s unwise to rely too much on a company’s cash position when evaluating an investment. Doing so can cause investors to ...
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