Bond International - Strong growth at a reasonable valuation

In a way you're both right.

If, for example, 1mm cash is received upfront for a 12 month contract, there is no change in the income statement. 1mm is added to cash on the asset side, 1mm is added to deferred income on the liability side of the balance sheet. Over the next 12 months, the deferred income is reduced to zero and 1mm put through the income statement as revenue (which ultimately contributes to the shareholders equity part of the balance sheet as profit (hopefully)).

Therefore, on the plus side, deferred income gives an indication of future sales. On the negative side, the cash for those sales has already been paid so it had a positive effect on the cashflow statement in the year just ended (increase in creditors = decrease in working capital) but will have a negative effect on the cashflow statement in the year its booked as income (reduction in creditors = increase in working capital).

Since this occurs with several contracts, it's actually the change in deferred income which will impact the cashflow statement (unless you're winding the company up).