It has been suggested that cash is king and that readers of a company's accounts should pay more attention to information concerning its cash flows and balances than to its profits and other assets. It is argued that cash is more difficult to manipulate than profit and that cash flows are more important.
Required:
(a) Explain whether you agree with the suggestion that cash flows and balances are more difficult to manipulate than profit and non-cash assets.
(b) Explain why it might be dangerous to concentrate on cash to the exclusion of profit when analyzing a set of financial statements.