A New Concept and Application of Cash Profits

Focus on the question that how to take advantage of accounting information more effective in corporate decisions, we propose a new concept of "cash profit" which combines the information both from cash flow and accrual earnings. The connotation and superiority of cash profit is analyzed. Based on empirical hypothesis, we exam the impacts of cash profits measure and accounting earnings measure on corporate investment and financing decisions. The empirical results suggest that cash profits are a relative useful measure of firm performance to accounting earnings measure.