What is the relation between cash and profitability ?

Profitability as per accounting principles and standards is not dependendent upon the Cash recieved. 

This is the reason some companies manupulate their FS, eg by revaluing there Assets and creating a reserve while no actual cash is recieved.

http://www.investopedia.com/articles/fundamental-analysis/financial-statement-manipulation.asp

Cash Flow Statment is used by analyst to actually see the flow of cash from various actitivities.

if you are conservative it means that you have more cash and less profitability, if you are aggresive you have less cash and more profitability

• The profit is the primary goal of economic activity of the facility, in order to achieve is making all the decisions, and cash is the means to achieve this goal, as the liquidity can not be a goal in itself, because the investor rational seeks to make a profit and not to achieve liquidity.Liquidity is a for-profit, that profit is the one who provides liquidity while achieving liquidity could contribute to the increase in profit and can not contribute in some cases, if cash is kept fully in the fund.

Making profit generates cash flow. Any business owner knows that. But the actual increase in cash during a given period is invariably lower or higher than the profit number. The following points illustrate how cash flow relates to profit:

The amounts of cash flows during the period rarely are equal to the revenue and expense numbers in the P&L (profit and loss) report for the period.

Actions that lower cash flow: increasing accounts receivable and inventory; decreasing accounts payable and accrued expenses payable.

Actions that raise cash flow: decreasing accounts receivable and inventory; increasing accounts payable and accrued expenses payable.

Depreciation expense is not a cash outlay in the period recorded; neither is amortization expense; unusual losses recorded in the period may not involve cash outlay but rather be write-downs of assets or write-ups of liabilities.

There is no direct relation between cash and profitabity. Cash is based on facts but profitability is based on personal judgement and can be manipulated.

However, elements such as sales and cost of goods sold which are used in calculation of net profit (Income Statement) are also used in calculation of net cash provided by operating method in (Cash Flow Statement) either in direct mithod or indirect method.

In addition, considering cash and profit together in analysis of the company's financial performance could give better result than use only one of them.

There is no natural correlation between profit and cash flow

However to check if a company is not using deceptive accounting in their books, see if the trend line of profitability is similar to that of cash flow (from operations).

As mentioned below, both should be used togther to analyze a firm's financial performance.

Cash is the most liquid asset of the company. And the business uses cash with the combination of other assets to generate profit. The cash is provided by owner/s or shareholders or by lenders.

While profitability portrait the picture of the business in terms of effectiveness and efficiency regarding the use of its assets. In other words, it measures the earning capacity of the business.

Business can manipulate the profits by applying different polices such as depreciation policy for different purposes.