Business and Competitive Analysis: Effective Application of New and Classic Methods, Second Edition

11. Competitor Cash Flow Analysis

Cash flow is often described as the “life blood” of a business. Although profit is a reasonable measure of performance (due to the “matching concept” of accrual accounting), it is a very poor measure of viability. Cash flow is a prime measure of sustainability and also is a major determinant of operating flexibility—the ability to fund new initiatives and to defend against competitive attacks.

Both historic and future cash flow analysis are crucial. Although historic cash flow analysis adds a little to our understanding of a business, its underlying strength, and the ability of management to cope over the business cycle, future cash flow is the most valid in determining feasibility and future flexibility. Naturally, ...