Explain the difference between Price-Earnings multiples and Cash Flow multiples?
Answers:
Although the 1st answer is correct, it is not concise. There are simply two differences between currency flow and income. One of these is depreciation, depletion, and amortization. These are referred to as non-cash expenses. They are necessarily accounting gimics to smooth out the reported proceeds stream. So surrounded by effect they work to manufacture reported earn per share smaller quantity than brass flow per share. They result from income expenditures, contained by mining industry an accounting for the certainty that the resourse are one depleted, and the write stale of right will and intangibles(paying more for something than it is worth).
The other difference is more of an operating press than an accounting query. That is how capably the company is managing the business. It involves managing the flow of funds into and out of the business. If the flow of funds out of the business is greater than the flow into the business consequently the company have a cynical change flow. Not perfect. This can result from several trunk cause. 1. mountain of inventories 2. not delivery gift for merchandise sold. 3. property expenditures that are greater than depreciation. The with the sole purpose route that these glum lolly flow items can be compensated are by spending retained profits and by borrowing money. Usually, borrowing money.
The numerator (market price) is like peas in a pod.
The difference is contained by the denominator,
as the difference between Earnings and Cash Flow (*)
(*) or better Cash-Earnings, as Cash Flow
relates as a rule to liquidity, not to results.
To put it simply
cash-earnings = earnings plus asset depreciation
Obviously cash earning are high than profits,
they might even be positive when income are glum.