Search for:

Posted on May 4th, 2014, by

Business operations may be hard without appropriate acknowledgement of the dissimilarity between profits and cash. It is extremely crucial for the business to be capable to make profits available to guarantee business’ long-standing operations progress. Additionally, without cash it would be hard to run any business. To begin with, it is vital to define every term, namely, profit and cash. It is also good to identify the role of cash and profit in the business and to distinguish their importance. Thesis: although the major aim of any company is to get profits, it is crucial to realize that without cash, business operations are bound to come to the standstill. Without cash inflows to the business, it may not meet its current expenses. Business may also make profits, yet it may lack money to settle business operations before credit sales are paid for. Cash is, therefore, more important of the two. Profit and Cash The main goal of initiating a business is to obtain a profit. Without profits, the company is likely to disappear over time. The firm may also not increase as expected. It may also not be capable to provide quality goods and services as well as appropriate salaries to the personnel. This leads to the high employee turnover that is destructive to business. Though the aim of any business is to make profit, it should be mentioned that cash is the most important indicator towards the prosperity of a company. It is vital to remember without cash in a business, the venture is lifeless. A business may run for some time without making profits or sales, but without cash, the business is bound to close. Cash determines the capability of the company to meet all daily payments on time. The capability of the company to make payments on time is dependent on the sum of cash inflows as well as timing. Cash flows may be categorized in to 3 categories: investing, operating and financing cash flow. Operating cash flow or the working capital, is cash derived from inner company’s operations, for instance, internal sale of products and services. Investing cash flow is within generated. It emerges from not operating activities like fixed assets or spending cash away from normal business operations (Mulford, Comiskey, 2005). Cash to or from external sources – investors, lenders, shareholders – is called financing cash flows. This is comprehensive of activities, for instance, loan repayments, stock issuance, dividend payments and novel loans. Having known the sources of cash flow to a business, it is ideal to realize the best management practices for preservation of cash for business. It is vital to acknowledge how, where, and when money needs are likely to appear. Additionally, it is important to know where to get any additional cash to meet business requirements in time. The business owner is then expected to be ready to settle these requirements as they appear, by either keeping good business relationship with banks and creditors (Cinnamon, Helweg-Larsen, 2006).

Posted in Term paper writing | Tagged , | Leave a comment

Leave a comment

Your email address will not be published. Required fields are marked *





0 Comments