Please reply to the following thread:

How might this discrepancy occur?

• This builds on themes already explored about value of a firm. Earnings are a portion of firm value but doesn't show the whole picture. Damodaran hits on this idea well in that "the objective in corporate finance is not to maximize accounting income but to maximize the value of the business" (2014). When looking at relationship of earnings and cash flow there are many factors that can lead to discrepancies. Examples of this include the time value of money, timing of income recognition and expenditures, cannibalism of current product related cash flow, inventory impacts, capital expenditures and other investments. Whether its cash flows to drive the project, accounting methodologies, or overall firm value impacts, an improvement in earnings can come with impacts to cash flow and firm value of favorability or unfavourability depending on the bigger picture.

How would you explain and demonstrate to the CEO your concern about the project's viability?

• To Demonstrate this, I would focus on translating the bigger pictures with factors beyond earnings, beyond income statement performance and more into wholistic firm value. In doing so reminding the CEO that accounting earnings are imperfect and a sub portion of the full story of firm value as it lacks cash timing and other risks. Free cash flow and net present value might be valuable tools to tell this story. It can show where other less obvious cash flows may exceed the increase in earnings. Pending those impacts and values it could show short-term value adds but eventual reduction in long term firm value and cash flows. Pushing the CEO to ensure the proposed project yields sustainable value adds and wise stewardship for a firm's resources.

Biblical Integration

• Reflecting on this discussion first brought to mind Galatians 6:9 "let us not become weary in doing good, for at the proper time we will reap a harvest if we do not give up" (NIV). This shows while the CEO may have a piece of good in his reasoning, the CEO should not rest on early positive indicators but keep pushing to ensure the total good is found through robust considerations. Additionally, I thought of building on this with Proverbs 21:5, "The plans of the diligent lead to profit as surely as haste leads to poverty" (NIV).