Profitability on an accrual and cash basis on the example of enterprises from video game sector listed on the Warsaw Stock Exchange

Abstract

The aim of this paper is to check whether information based on accrual basis are reflected in cash approach to profitability. Therefore, whether financial data from income statement are consistent with cash flow statement. The main hypothesis assumes that it is true. To check this ascertainment empirically, financial statements of 8 companies from video game sector listed on Warsaw Stock Exchange (WSE) were examined. First part includes sample definitions of profitability and accrual and cash approach to processes occurring in the enterprise. Applied analytical methods are presented further. In next part empirical dependencies between profitability in accrual and cash approach were analyzed. Research methods included literature review, empirical data analysis and also induction and deduction methods used for inference. Analyzed measurements and indicators were characterized by occurrence of similar signs, descriptive statistics’ values and correlations. Therefore, conclusions about consistency between information referred to profitability in not only accrual, but also cash approach have been drawn. Both approaches simultaneously indicate good financial condition referred to profitability among majority of analyzed entities. Considering that, the hypothesis was confirmed.