Cash vs Profit
Are cash flows and profit the same thing?
No
The total amount of money spent by a company during a specific period on expenses, purchases, or investments.
Total Cash Outflows
These are expected cash payments in a cash flow forecast, typically including expenses like stock and labor.
Cash Outflows
This term describes the flow of cash in and out of a company's finances.
Cash Flows
Sales Revenue - Total Costs =
What is profit?
The difference in amount earned and the amount spent
The total amount of money received by a company during a specific period from various sources like sales, investments, and financing.
Total Cash Inflows
This is calculated by subtracting the total cash outflows from the total cash inflows in a cash flow forecast.
Net Cash Flow
This is the ultimate goal for a company when cash inflows and other revenues exceed all expenses and cash outflows.
Profit
Cash Inflow - Cash Outflow =
Net Cash Flow
Lag in flow of cash can cause the slow down of what in the cash cycle?
Slow down of operations/production
The amount of cash available at the end of a financial period, calculated by adding net cash flow to the opening cash balance.
Closing Cash Balance
This element of a cash flow forecast represents expected cash received from sales and other sources.
Cash Inflows
These are expenditures on assets intended to bring future financial benefits to a company.
Investments
Current Assets - Current Liabilities =
Working Capital
If you bring in $500,000 dollars and have to pay 10 precent to producers, what is your profit?
$450,000
The amount of cash a company has available for its day-to-day operations at the start of a period.
Operating Cash Balance
This financial document predicts future cash inflows and outflows over a specific period.
Cash Flow Forecast
These should ideally increase as a result of strategic investments by a company.
Cash Inflows
(Working Capital)
Ron's Surf Shop has $40,000 in cash assets, $15,000 in surf board equipment, and currently has to pay a $20,000 loan for his shop's property. What is the company's working capital?
Working Capital = $35,000
What are the 4 steps to the working capital cycle?
Cash in-> Payments -> Goods Produced -> Goods Sold
A financial state in which an entity cannot meet its financial obligations as they come due because its liabilities exceed its assets.
Insolvency
This balance at the end of one month becomes this at the beginning of the next month in a cash flow forecast.
Closing Cash Balance
This is how companies aim to progress by investing in better processes or products.
Increasing Profit and Cash Inflows
(Profit)
Freddy's Burger Shack sells 1,500 burgers meals every month that sells for $12. He also has a specialty custard that he sells about 500 per month at $6 per cup. He pays $7,000 on ingredients per month and pays his employees $6,000 per month. What is his companies net profit per month?
Net Profit = $8,000