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Cash accruals might have been generated well during the year but there might be a decline in the cash.
A lender would be more interested in cash generated than the cash accruals generated during the year. After all, its your cash generated which pays up the financial obligations.
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A lender will be more interest in cash generated during the year for the following reasons:
1. creditors are more interested in an entity's ability to repay them than in its profitability. Whereas profits might indicate that cash is likely to be available, cash flow accounting is more direct with its message.
2 The accruals concept is confusing and cash flows are more easily understood
3.cash flow is more comprehensive than profit which is dependent on accounting conventions and concepts.
4. cash flow accounting can be both retrospective and also include a forecast for the future . This is of great information value to lenders.
The lender typically wants to take a look at your financial records. In reviewing your credit-worthiness, the bank typically looks at your assets. In particular, creditors want to see that you have enough to provide financial stability when you take on new debt obligations. Several common liquidity ratios are used to compare assets and debts
agree with the answers ..................................................
Thank you for invitation. Agree with expert answer given here.
agree with mr. sai on his answer
Both are important. Business should have enough profits (irrespective of cash) and it should also have enough cash generation to service the debt (principal and interest payments both)
Agree with Sai Animesh Kumar Nandivada
