Understanding Cash Flow

Name: Understanding Cash Flow
Author: Anna Bull

The following lessons will give you a better understanding of cash flow management. This module defines gross profit, net income, and cash flow. You will learn…

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Course: On-Demand

Cash flow management is the process of monitoring and controlling cash inflows and outflows. The main goal of cash flow management is to ensure that the incoming flow of cash is greater than the outgoing so that your company maintains a surplus. If cash flow is not managed effectively, your business can come to a standstill. Let's look at gross profit in relation to cash management. Gross profit is a subtraction of a businesses revenues from the cost of goods sold. Gross profit includes variable costs which depend on the level of business output such as material and labor costs directly associated with generating products or services. Gross profit does not include fixed costs that have to be paid regardless of output such as rent or employee salaries. Net income is the amount of profits your business retains after paying all its expenses. Net income is also known as net earnings or net profit. Any business can determine its net income by subtracting total revenue from expenses. Net income can be positive or negative. If a business has more revenue than expenses, it'll have a positive net income. If expenses outweigh revenues you'll have a negative net income also known as a net loss. Cash flow is the amount of cash that flows into and out of a business in a particular period of time. Simply put, when a business has a positive cash flow, it has more cash coming in than going out. This means it has the funds to pay its bills and any additional expenses it might incur. If your business has a negative cash flow, you might not be able to cover your expenses. Key cash flow components are operating, investing or financing activities. Each one is listed on the cash flow statement according to the nature of the transaction. Operating activities include all cash activities related to the net income of a business. For example, cash generated from the sale of goods or services, revenues and cash paid for supplies, expenses are considered operating activities. Investing activities are related to any non-current assets a business has. Non-current asset often include long-term investments, property and equipment. And the principal amount of loans of business has with other entities. Examples of non-current assets are cash a business generates from the sale of land or pays to invest in another company. Keep in mind any interest accrued from these loans is also included in operating activities. Financing activities involve cash activities related to noncurrent liabilities and the owner's equity in a business. This includes liabilities such as long-term debt, stock sales and any dividend payments of business makes.

Beginner Provider : Anna Bull 3 Lessons · 8m in Arabic, German, English, Spanish, French, Portuguese, Chinese

Course Description

The following lessons will give you a better understanding of cash flow management. This module defines gross profit, net income, and cash flow. You will learn about the negative and positive cash flows of a business. You will also learn how businesses can use a cash flow analysis to assist in forecasting.

What You'll Learn

Understand cash flow management and profitability
Identify each component of the cash flow statement
Define gross profit, net income, and cash flow
Distinguish between positive and negative cash flow in a business
Apply cash flow analysis to assist with forecasting

Key Takeaways

The module defines gross profit, net income, and cash flow.
A business can experience both positive and negative cash flows.
Cash flow analysis can be used to assist in forecasting.
Understanding cash flow management is connected to understanding profitability.

Frequently Asked Questions

What does this course cover?

It defines gross profit, net income, and cash flow, covers the positive and negative cash flows of a business, and explains how businesses can use cash flow analysis to assist in forecasting.

What are the learning objectives of this course?

The objectives are to understand cash flow management and profitability and to identify each component of the cash flow statement.

What lessons are included?

The course includes three lessons: Gross Profit, Net Income, and Cash Flow; Positive and Negative Cash Flow; and Cash Flow Analysis and Forecasting.

What skills will I gain from this course?

You will build skills in cash flow analysis, cash flow improvement, cash flow forecasting, cash flow management, cash flows, and cash flow statements.