1. Cash flow v Profit
Unit 19

2. Videos

3. What’s the difference between cash flow and profit?
Financial item
Cash Inflow?
Revenue?
Cash sales made to customers y Y
Credit Sales made to customers
Capital raised from share sales
Charging rent on flat upstairs
$20,000 bank loan
Carry out a sale and leaseback

4. Cashflow and Profit
When planning the short- or long-term funding requirements of a business, it is more important to forecast the likely cash requirements than to project profitability etc. Whilst profit is a vital indicator of the performance of a business, the generation of a profit does not necessarily guarantee its development, or even the survival.
Bear in mind that more businesses fail for lack of cash flow than for want of profit.

5. Cash Flow vs Profit
Sales and costs and, therefore, profits do not necessarily coincide with their associated cash inflows and outflows.
The net result is that cash receipts often lag cash payments and, whilst profits may be reported, the business may experience a short- term cash shortfall. For this reason it is essential to forecast cash flows as well as project likely profits.

6. Analyse these figures…

7. Figures…
This shows that the cash associated with the reported profit for Month 1 will not fully materialise until Month 3 and that a serious cash short- fall will be experienced during Month 1 when receipts from sales will total only $20,000 as compared with cash payments to suppliers of $40,000.

8. How do the factors below influence cash and profit (p.108)
Seasonal factors
Credit Problems
CAN A CASH RICH FIRM BE UNPROFITABLE?

9. Analysis & Evaluation – P.109
Read and make a note
What does insolvency mean?
Questions End of Chapter