Profit & loss account Vs. cash flow statement

The profit & loss account reveals the revenue of the company for the particular period.On the other cash flow statement gives the company's cash figure in a specific period.

Let's understand this with an example:

Mr.ABC owns a food joint where he sells pizzas. The sales are primarily on a cash basis. He doesn't allow credit to his customers. In this case, the revenue of the food joint = cash generated

Now, let's assume that he started with a mobile shop where the mobiles are sold on cash and credit. This means not every customer is going to pay on the spot. So here, the revenue figure will be more than the actual money generated.

From the above example, you can observe that the cash flow statement reveals the company's actual financial condition or sanity.

Needless to say, an increasing trend in the cash flow on yoy basis is a sign of a good company.