What makes a stock worth investing

Good evening, tonight I want to cover the last topic about investing in the stocks

And that topic is profit.

Now to most of you this is quite boring and a bit too technical but I will try to explain it to you in simple terms, making bulleted outlines and comparing profit to cash-flow and accounting terminologies found in a profit and balance sheet.

Profit vs Cash-flow

"If your business is profitable, it doesn't mean you have cash flow. Confusing? Let's break down why."

Understanding Profit

- Simple definition of profit: Revenue minus expenses.

- Explanation of accounting profits: Difference between simple profit and accounting profit.

Five Reasons Profit and Cash Flow Differ

1. Capital Assets

- Example of buying a delivery truck.

- Cash flow impact vs. profit impact (immediate expense vs. depreciation over time).

2. Inventory

- Example of buying inventory.

- Cash flow impact (immediate expense) vs. profit impact (gradual expense as inventory is sold).

3. Accounts Receivable

- Example of invoicing a customer.

- Profit recognized when sale is made vs. cash flow when payment is received.

4. Deferred Revenue

- Example of selling a subscription.

- Cash received upfront vs. profit recognized over the subscription period.

5. Accounts Payable

- Example of receiving an invoice from a supplier.

- Expense recorded when invoice received vs. cash flow when payment is made.

Was this simple enough? I hope it was for you, I want to conclude it, it is not so good to read due to the accounting terminology involved but if you like you can do further research.

Remember investing is risky, it needs thorough research to be successful, preparation and willingness to take calculated risks while making the decision to invest, this is me nudging you to invest wisely, have a great night.