You should NOT focus on Net Profit!

Net profit can often be dressed up by accounting practices, making a company look healthier than it really is.

But cash earnings don’t lie—they show us the actual money flowing into and out of a company, the lifeblood that keeps the business alive.

In India, where trust in businesses can make or break our investments, understanding cash flow is not just important; it’s essential.

I am presently learning with Indian Institute of Management Ahmedabad how to detect companies that are polishing their financials in their Financial Reporting and Corporate Governance (FRCG) program.

In the program, we conclude that the Profit and Loss statement might tell a good story, it’s the cash flow statement that reveals whether a company can pay its bills, invest in growth, and return money to shareholders.

If you only look at net profit, you might miss the warning signs of a company struggling to survive, no matter how profitable it appears on paper.

Imagine trusting a company’s net profit, only to find out later it’s sinking in debt and burning through cash—your hard-earned money could go down with it.

Cash is king, especially in our volatile markets, where survival is often the difference between success and failure.

When you invest, you’re putting your future in the hands of these companies, and you deserve to know the full truth, not just a polished version of it.

So, the next time you analyze a stock, remember: net profit might catch your eye, but cash earnings will protect your wealth.

In the end, it’s the cash flow statement that can help you sleep at night, knowing your investments are in companies that can truly thrive.