The 'Cash-Flow' Illusion.

Abstract Security analysts, not always noted for their grasp of accounting principles and procedures, seem to be suffering from an acute attack of "cash-flowitis," manifested especially by their fondness for per-share calculations of "cash-flow," in company with or superseding figures for net earnings per share. Writers on corporate finance, including authors of textbooks, are also becoming bewitched by the lure of such determinations, although seldom if ever does such a writer give clear evidence of an understanding of the measurements he is discussing and touting. In commenting unfavorably on the current "cash-flow" hullabaloo the writer has had no intention of belittling sound cash and fund analyses for various purposes, including preparation of forecasts and budgets, formulating financing programs, developing dividend policy, and working out plans for plant improvement or expansion. Cash or equivalent is a key business asset in that it is the only resource that can be readily exchanged for any desired commodity or service, or used to liquidate obligations and effect distributions to investors, and hence it is highly appropriate that this resource be a focus of concern and study in financial administration.