difference between cash flow management and working capital (liquidity) management (1 Viewer)
- Thread starter iamorbid
- Start date
Re: difference between cash flow management and working capital (liquidity) managemen
Cash flow management is the cyclical flow of cash in and out of the business. Inflow includes accounts receivables and commissions whereas outflows are wages, payments to suppliers and insurance.. Cash flow needs to be managed, as cash flow problems are one of the reasons why businesses fail, the outflow is larger than the inflow.
Working Capital is the difference between current assets and current liabilities. It is needed so that the business can extend to customers and meet its current debts or financial commitments.
Basically cash management deals with cash and working capital deals with assets and liabilities.
Hope this helps.
Cash flow management is the cyclical flow of cash in and out of the business. Inflow includes accounts receivables and commissions whereas outflows are wages, payments to suppliers and insurance.. Cash flow needs to be managed, as cash flow problems are one of the reasons why businesses fail, the outflow is larger than the inflow.
Working Capital is the difference between current assets and current liabilities. It is needed so that the business can extend to customers and meet its current debts or financial commitments.
Basically cash management deals with cash and working capital deals with assets and liabilities.
Hope this helps.
Last edited:
Re: difference between cash flow management and working capital (liquidity) managemen
-Factoring: (for shortfall) to get an immediate source of funding
-Distribution of Payments: Spread it evenly to avoid these shortfalls and excesses.
In terms of cash flow management the business aims to not have too much of an excess in cash, while not having any shortages.
For working capital the business basically aims for the optimal rate of the current ratio (industry standards, etc) to ensure that if shit happens and there is a point where the business has an overwhelming amount of debt, they will have enough funds to pay it off. Generally in the syllabus it focuses on the control of these current assets and liabilities, and what you can implement to help with your current ratio position (such as paying overdrafts with retained profits, use the JIT strategy, factoring).
Also there are the actual strategies of leasing and leaseback, to increase the cash on hand, which can be used to pay for stuff.
tl;dr Cash flow management deals with the money transactions the business does and they will aim to not have periods of shortfall or too much excess (which tells us money isn't used for the benefit of the business). Working Capital is basically the business' capability to pay its short term commitments, and the business can do this throught controlling their assets or liabilities or engaging in strategies such as leasing or sales and lease back.
Basically this, cash flow management are the transactions (how cash flows in and out of the business) made by the business at a current point, at some times there is an excess of cash and sometimes there is a shortage, this is why you use strategies such as:
-Factoring: (for shortfall) to get an immediate source of funding
-Distribution of Payments: Spread it evenly to avoid these shortfalls and excesses.
In terms of cash flow management the business aims to not have too much of an excess in cash, while not having any shortages.
For working capital the business basically aims for the optimal rate of the current ratio (industry standards, etc) to ensure that if shit happens and there is a point where the business has an overwhelming amount of debt, they will have enough funds to pay it off. Generally in the syllabus it focuses on the control of these current assets and liabilities, and what you can implement to help with your current ratio position (such as paying overdrafts with retained profits, use the JIT strategy, factoring).
Also there are the actual strategies of leasing and leaseback, to increase the cash on hand, which can be used to pay for stuff.
tl;dr Cash flow management deals with the money transactions the business does and they will aim to not have periods of shortfall or too much excess (which tells us money isn't used for the benefit of the business). Working Capital is basically the business' capability to pay its short term commitments, and the business can do this throught controlling their assets or liabilities or engaging in strategies such as leasing or sales and lease back.
iamorbid
Member
- Joined
- Jul 28, 2012
- Messages
- 129
- Gender
- Male
- HSC
- 2012
Re: difference between cash flow management and working capital (liquidity) managemen
Thanks for the help guise, what I now understand is that cash flow management only deals with cash (and liquidity) from income statements whilst working capital management deals with current assets and liabilities (and liquidity) balance sheets. Right?
Also Examine, shouldnt you be doing yr 11? how do you know this stuff?
Thanks for the help guise, what I now understand is that cash flow management only deals with cash (and liquidity) from income statements whilst working capital management deals with current assets and liabilities (and liquidity) balance sheets. Right?
Also Examine, shouldnt you be doing yr 11? how do you know this stuff?
Re: difference between cash flow management and working capital (liquidity) managemen
http://www.boardofstudies.nsw.edu.au/syllabus_hsc/pdf_doc/2012-business-studies-specimen-paper.pdf
Cash sales are what flows into the business, while cash expenses are what flows out. Question 10 also relates to how you can manage cash flow onto how you can improve it. The answer for Question 10 would be D so that the business can overdraw their account to get enough money to pay for the March expenses, which are abnormally high.
I'm accelerated in business.
Actually there is a thing called a cash flow statement, and that is what shows the cash flow in the business. A simple version of a cash flow can be seen in Question 9 in the Specimen Paper
http://www.boardofstudies.nsw.edu.au/syllabus_hsc/pdf_doc/2012-business-studies-specimen-paper.pdf
Cash sales are what flows into the business, while cash expenses are what flows out. Question 10 also relates to how you can manage cash flow onto how you can improve it. The answer for Question 10 would be D so that the business can overdraw their account to get enough money to pay for the March expenses, which are abnormally high.
I'm accelerated in business.
Re: difference between cash flow management and working capital (liquidity) managemen
Income statements are used to calculate gross and net profit, as well as comparing how the business has done in previous years, or to other competitors. As seen in Question 25 of the paper I linked to you above. The income statement allows you to see the changes, in this case, COGS have risen which has reduced their gross profit, and salaries have risen to reduce their net profit.
Income statements are used to calculate gross and net profit, as well as comparing how the business has done in previous years, or to other competitors. As seen in Question 25 of the paper I linked to you above. The income statement allows you to see the changes, in this case, COGS have risen which has reduced their gross profit, and salaries have risen to reduce their net profit.