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The Finance Perspective

Why finance is obsessed with cash and the future

Accounting statements are critically important for understanding corporate performance, but they have drawbacks. In reaction to those drawbacks, the field of finance has developed a distinctive approach to making decisions and analyzing performance.

That approach has two pillars. First, finance practitioners have questioned the best way to measure economic returns. While accounting emphasizes net profit, finance professionals consider net profit flawed, as it ignores several important issues. Finding solutions to these problems has caused finance professionals to turn toward cash as a better measure of economic returns. Indeed, they can sometimes be obsessed with ...

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