INCREASING CASH FLOW, DECREASING PROFIT

Lana Ferdinand, the owner-manager of a small proprietary company, had carefully monitored the cash position over the past financial year, and was pleased to note at the end of the year that the cash position was strong, and had shown a healthy 50% increase over the year. When presented with the statement of profit or loss for the year, she was dismayed to note that profit had deteriorated significantly. In her anger, she accuses you of having made errors in the accounting since such a silly situation could not possibly exist.

Required

Explain how you would respond to Lana Ferdinand.