Cash Flow Forecasts

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Cash Flow Forecasts

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Cash Flow Forecasts

Introduction

Everyone is familiar with the fact that cash is everything when it comes to running small businesses, it is indeed true. If the cash flow is not handled well the manager of the company can face serious difficulty. A lot of small and new companies which have been making a substantial profit are still forced to close because they were not able to manage the cash flow properly. This is the reason that meticulous cash flow analysis of an organization is essential to run the business. When it comes to working capital analysis, it is crucial for big companies capability to borrow or grow their share pay expenses, short-term debts, and their share price. While working capital for smaller companies who are not capable of accessing financial markets for borrowing, and attaining startups that are required to survive until break even (The Basics of Cash Flow Analysis, 2019). In this paper, I will be discussing the importance of cash flow forecasts and working capital analyses, and how an organization can face serious downfall if it is not handled and analyzed well.

Discussion

For starters, what exactly is cash flow analysis and working capital analysis It is mainly keeping track of how and when the cash flows in or out of your business. There are a total of three kinds of cash flows cash flow generated from financing activities, investing activities and operating activities. While working capital analysis shows the total amount of the liquid assets, a company owns and has available to run the business (Aktas, Croci Petmezas, 2015). Generally, the more a company has working capital, the less financial difficulties are faced by it.

It is essential for a manager to sustain the working capital of the organization. It is crucial for the firms financial health as well as the operational triumph. Good business management will be able to use working capital analyses on a daily basis to uphold the balance between profitability, growth, and liquidity. While working capital is very vital but it alone cannot maintain the financial health of the company. That is where cash flow comes in. Cash flow helps give an idea of a companys liquidity and financial health be presenting the manager that what is available to meet the needs of the company. Having a profit of one million is not amazing if the cash flow of the company predicts that you cannot pay the rent and will get evicted before ever collecting the profit. It is essential that a manager keeps under check the working capital as well as the cash flow regularly to see if any changes are required to have a positive impact on the health of the business.

Conclusion

It is evident that both the cash flow forecast and working capital analyses are crucial to maintain the health of the business. If both are not managed hand in hand, the business can face serious difficulties, even issues like closing up. Bigger organization as well as a small business both need to understand that profit alone will not cut it, these two need to be always under the managers radar on a regular and uniform basis to preserve the future of the organization.

References

The Basics of Cash Flow Analysis. (2019).YouTube. Retrieved 14 February 2019, from HYPERLINK https//www.youtube.com/watchvZrSwmVUelDYfeatureyoutu.be https//www.youtube.com/watchvZrSwmVUelDYfeatureyoutu.be

Aktas, N., Croci, E., Petmezas, D. (2015). Is working capital management value-enhancing Evidence from firm performance and investments.Journal of Corporate Finance,30, 98-113.

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CASH FLOW FORECASTS

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