Discussion 2: Cash Flow and Financial Analysis- 450 words APA citation
Part 1: Importance of Cash
Generating cash is the ultimate responsibility for managers today. Cash and cash flow are considered the “lifeblood” of a business.
How important has cash generation been for your current company or a prior employer? How is cash generation different from the concept of profit and loss (P&L) in accounting? Provide an example of how a company manages cash flow.
Part 2: Application of Concepts/Financial Analysis
Review the materials in the link below. Based on the materials presented in this link, discuss why financial analysis is important in the overall understanding of the financial performance of a firm. Be specific and give examples based on your experience or research.
: Cash Flow and Financial Analysis
Introduction
Cash flow is the lifeblood of any business. It’s important because it helps you manage your finances, but it also has a direct impact on your bottom line. The more cash you have in your coffers at the end of each month, the less likely it is that you’ll owe money on any outstanding debts.
Because it is an important element of the financial well-being of your business, cash flow should be monitored closely.
Cash flow is an important element of your business’s financial well-being. It’s a measure of how well a company is managing its assets, which can include physical assets like buildings, equipment and inventory as well as intangible assets like intellectual property (IP).
Cash flow refers to the amount of money that flows into or out of your company in a given time period. Cash flow can be positive or negative if you have more bills than receipts coming in during the same period. If cash inflows exceed outflows for an extended period of time, it could indicate that there are problems with either your financial situation or operations that need attention before anything else happens on paper (such as invoices being paid).
Analyzing cash flow can help you track how quickly your receivables are converted into cash.
Cash flow is a very important part of financial analysis. It can help you track how quickly your receivables are converted into cash, which will help you make informed decisions on product development and marketing strategies.
To calculate cash flow, first add up all income from sales (less any expenses related to those sales) and then subtract any expenses related to those sales (e.g., costs of goods sold). You should also include any other income not already included in this calculation; for example, interest earned on investments or rental income from properties owned by your company could be added in here as well if they are considered part of business operations rather than an investment or property asset held for future resale purposes only (which would not be included under “other income”).
To do so, look at the total amount of cash coming in compared to the total amount going out.
You can use a cash flow statement to evaluate the company’s financial performance.
To do so, look at the total amount of cash coming in compared to the total amount going out. If you see that there is more cash being generated than being used for operations and investing, then you know that your business has positive net income or profit after taxes (PAT).
If you see that there is less money coming in than going out, then this could mean either:
The company has negative net income or PAT; or
Someone has borrowed money from investors but hasn’t returned it yet (which means they will have to pay interest on their loan).
The cash generated by operations also is disclosed on a firm’s income statement, where it’s reported as either working cash flow or as net income less non-cash expenses.
The cash generated by operations also is disclosed on a firm’s income statement, where it’s reported as either working cash flow or as net income less non-cash expenses.
Working cash flow is a measure of cash flow from operations and shows how much money a company has left over after paying its expenses and making investments in the business. It can be compared to net income (the bottom line) because both are calculated differently. For example, if you have $100,000 in sales and only spend $80k on goods sold but make no other investments or pay any salaries or wages for employees during that period then your working capital will increase by $20k (the remaining $20k) which is equal to 20% of your total sales revenue ($100k). This means that even though your net profit may not be much higher than before this change occurred; in fact it could decrease slightly due when looking at things from an accountant’s perspective who needs all financial information available before making important decisions regarding how they should handle their own business finances.
Cash flow from investing includes revenues from investing activities like the sale of a fixed asset or some other property.
Cash flow from investing includes revenues from investing activities like the sale of a fixed asset or some other property. Cash flow from investing is reported on the cash flow statement as net cash provided by (used in) investing activities.
For example, if a company sold a piece of equipment for $7,000 and the original cost was $10,000, the difference of -$3,000 would be included in cash flow from investing.
For example, if a company sold a piece of equipment for $7,000 and the original cost was $10,000, the difference of -$3,000 would be included in cash flow from investing. This is because the money from selling an asset will help fund other investments or purchases.
When reporting its financial results for a given period, a company will disclose its cash flows in three categories: operating activities like paying vendors; financing activities like issuing common stock or paying dividends; and investing activities like purchasing factory equipment or selling investments.
When reporting its financial results for a given period, a company will disclose its cash flows in three categories: operating activities like paying vendors; financing activities like issuing common stock or paying dividends; and investing activities like purchasing factory equipment or selling investments.
Cash flow from operating activities includes cash generated by a company’s normal operations, such as selling products or services. Cash flow from financing activities includes cash generated by issuing stock or taking out loans. Cash flow from investing activities includes purchases of new assets that increase the value of existing assets and reduce future costs; sales of assets with lower values (or using them up); and reductions in liabilities (such as accrued expenses not yet paid).
Cash flow from financing refers to the net effect on cash generated by financing arrangements such as taking out loans or using credit cards to pay bills.
Cash flow from financing refers to the net effect on cash generated by financing arrangements such as taking out loans or using credit cards to pay bills.
It’s important to understand that cash flow from financing is typically reported as a negative number, since it represents cash outflows.
Conclusion
I hope this article has given you a better understanding of what’s involved in analyzing cash flow, and why it’s so important. The next time someone asks how much money you have, don’t be afraid to tell them—it will help them understand your business!