1. Financial Analysis LAP 6
Count the Cash
Financial Analysis LAP 6

2. Objectives Describe the importance of cash flow.
Describe the components of a cash flow statement.

3. Describe the importance of cash flow.
Objective
Describe the importance of cash flow.

4. When you owe more money than you have–
Your cash flow is out of balance.
You may not be able to pay all of your bills.
You may need to borrow money from a family member or a friend.
Not a situation you want to be in very often
Businesses sometimes are in the same situation.
Businesses monitor their cash flow to avoid this problem.

5. Importance of Cash Flow
Cash—it makes the world go around.
Businesses need cash to operate.
Need to manage their cash flow:
The movement of funds into and out of a business
Determine the amount of cash they have to work with at any given time

6. Cash Flows Into a Business From Five Main Sources
Start-up money
Sale of products
Loans
Interest
Sale of assets

7. Main Sources of Cash Flowing Out of a Business
Operating expenses
Cost of goods sold
Assets
Loan payments
Taxes
Miscellaneous

8. Monitor Cash Flow To build a cash surplus when sales are up
Creates a safety net for the slow time
Keeps the cash flow balanced

9. Describe the components of a cash flow statement.
Objective
Describe the components of a cash flow statement.

10. Cash Flow Statement
Best guess, or estimate, as to when, where, and how much money will flow into and out of the business
Tells the business–
When money will flow in
Where money will flow in from
How much money will flow in

11. Finding Necessary Information
May be a problem for new businesses
Do not have previous financial data
Often rely on figures obtained through marketing research
Existing businesses have financial information.
Review previous profit-and-loss statements.
Analyze industry trends and predictions.

12. Components of a Cash Flow Statement
Cash payments
Beginning cash balance
Money available at the beginning of each month
Cash receipts
Specific sources of money flowing into the business
Total cash receipts
All of the sources of income listed under cash receipts
Total cash available
Cash available to spend each month
Sources of cash flowing out of the business
Total cash paid out
Determined by adding all of a business’s cash payments
Ending cash balance
Cash a business has left at the end of the month

13. What This Means Indicates the financial condition of a business
Gives a business a good idea of amount of money that will flow in and out
Positive cash flow means there is enough money on hand to meet monthly obligations.
Negative cash flow means the business will need to obtain additional money to continue operating.
Businesses with extra cash are able to invest.
Investments lead to growth and expansion.
This generates more sales and more cash.
Result is a prosperous business that has cash to continue growing.

14. Steps to managing your cash flow
List all of your income for the month.
List all of your expenses, even the small ones.
Total the amounts on each list.
Income should be more than expenses.
If not, there are two options:
Reduce your expenses.
Find a way to bring in more income.

15. Businesses often use cash flow statements to obtain credit.
What if they present information in a way that is legal but not quite ethical?
What if they get the loan, but the bank finds out?
Bank might not trust the business in the future.
May always be concerns about accuracy of financial information
Business might have trouble getting other loans.
Was it worth it to be less than completely truthful?
Was there another way to be ethical and still get the loan?

16. MarkED Acknowledgments Original Developers
Christopher C. Burke, Lynn Malowney, MarkED
Version 1.0
Copyright © 2007
MarkED Resource Center

17. Digital-based photography sources:
DIGITAL STOCK CORP.;
Business & Industry
Obj. B: #013
Photos copyright 1998 Corbis Corp.
750 Second Street, Encinitas, CA 92024
DIGITAL VISION;
Teenager Today
Obj. B: #130271
Photos copyright Digital Vision Ltd., all rights reserved.
833 Fourth Ave. SW, Suite 800 Calgary, AB, Canada T2P 3T5

18. Copyright:
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