Discussion-2

Cash Flow and financial Analysis

 

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Part 1: Importance of Cash

Generating cash is the ultimate responsibility for managers today. Cash and cash flow are considered the “lifeblood” of a business.

How important has cash generation been for your current company or a prior employer? How is cash generation different from the concept of profit and loss (P&L) in accounting? Provide an example of how a company manages cash flow.

Part 2: Application of Concepts/Financial Analysis

Review the materials in the link below. Based on the materials presented in this link, discuss why financial analysis is important in the overall understanding of the financial performance of a firm. Be specific and give examples based on your experience or research.

https://courses.lumenlearning.com/boundless-accounting/chapter/overview-of-financial-statement-analysis/

Original Post = 300 words (Including Part 1 & Part 2)

3- Responses needed = each response should 150 words

Response -1 (Shiva)

 

Part 1: Importance of Cash

Cash generation has been important to my company as it is easy to measure and compares. It is tangible which make it be measured in standard units. Cash flow helps when comparing two different companies no matter how different they are. Cash generation is also important, as it is difficult to fake. There are many ways used to inflate profits, increase the value of assets or trying to make business more successful in a more organized manner but this difficult to do the same in cash (Hackel, K. S., Livnat, 2017). Cash generation accepted as a store of value as it is very difficult to convince anyone to the value of around $40 million in cash, which cannot happen to the other assets. Profit and cash are different parameters in any business. The sales of values in a company can keep growing more and more thus the keep pouring in, which does not mean that the company is making a huge profit (Hales, 2019). For example, a company can be making and selling phones at a profit, but this product can be going on a long sales chain. Then most of your customers are from wholesale, and then they decide not to pay for their invoices for 150 days. Then your employees need their income after 30 days. This will result in the crisis between the employees who supply the products and your customers who take longer to pay.

Part 2: Application of Concepts/Financial Analysis

Financial analysis of a certain firm helps in making investment decisions thus helps in better reasoning. Some companies may decide to employ a financial analyst to be watching the strength and weakness of the company while other companies may decide to use financial consultants to perform periodic financial analysis (Follett, R. J. R. 2017). This helps in easy assessing of the managerial effectiveness of the company. The financial analysis also helps in analyzing the financial strength and weakness of a company. Financial analysis helps in assessing different types of assets owned by a business enterprise and helps in assessing liabilities. It provides data and good information of cash position in a certain company holds and shows all the debt that the company could be having (Hackel, K. S., Livnat, 2017). For example, influence data to create the marking reports and decisions helps to increase marketing productivity by an average of 20% to 25%. This translates $250 billion when based on annual global marketing. Spend will be almost $1.2 trillion per year, which will benefit your business.

Response-2(Sushirith)

 

The importance of cash

Cash is an important thing when people are purchasing products since it is used as the mode of payment.  Cash flow on the other side is the net change in the company position in different periods. If a business is able to take in more cash that what it is sending out then there is no doubt that the company has a positive cash flow. The negative cash flow on the other hand is when the company has more cash outflow that what it is receiving. Cash flow there is a major indicator of the financial health of the business (Keythman, 2019). With cash flow therefore the business is able to tell the amount the money that is going out including how money was spent. Additionally, cash flow also enables the business to concentrate on the excess cash even one is spending.  Cash generation is different from the loss and profit in accounting since cash generation is the amount of money that is produced after the business has paid for all the cost. Profit on the other hand is the amount that a business gains after spending in producing, operating and buying something.

Financial analysis

Financial analysis includes the interpretation as well as the analysis of the financial statements. Financial analysis therefore involves examining and analyzing organization financial statements in order to be able to make better decisions. Therefore, it is a process that involves determining the organization financial strengths and weakness of the business. Financial analysis helps a manager to analyze the current position of the business; it also helps in analyzing the creditworthiness, the strengths and the weakness of the business (Verma, 2012). In addition to that, financial analysis also helps in providing information concerning the position of the cash in the company including the amount of debit that the company has.

Response – 3 (Ravindra)

 

Importance of Cash

Managing cash flow is the lifeblood of any small business, some of the time denoting the distinction among progress and disappointment. Having abundant cash close by will guarantee that providers, representatives and others can be paid on schedule. It likewise enables organizations to put cash once more into the business to create extra income and benefit (Sage Simply Accounting).

An organization can close considering cash deficiency, regardless of whether the business is productive. Along these lines, hope to Be Accounting to help improve cash flows in the accompanying ways:

• Quickly issue proficient solicitations with point by point and exact data

• Reduce reprobate installments by offering more approaches to electronically send and get cash

• Accept Mastercard installments online for simple, on-time installment

• Access money projection and client matured rundown reports to comprehend what monies are owed to you and what your cash position resembles at any one time

• Easily track stock to lessen waste and monitor your stock levels

• Establish a favored providers list that recognizes past evaluating for materials or products obtained

• Forecast deals so you can prepare and know about client purchasing behaviors

• Pull data legitimately from most banks and rapidly cross-reference each exchange

Financial Analysis

Financial Statement Analysis is the way toward breaking down an organization’s fiscal summaries for basic leadership purposes. A few procedures are ordinarily utilized as a major aspect of financial report examination. Three of the most significant systems horizontal analysis, vertical analysis, and ratio analysis. Horizontal analysis looks at information on a level plane, by dissecting estimations of details crosswise over at least two years. Vertical analysis takes a gander at the vertical influence’s details have on different pieces of the business and furthermore the business’ extents. Ratio analysis utilizes significant proportion measurements to figure factual connections (Kenton, 2019).

Advantages :

By utilizing master financial investigation on a continuous premise, firms can settle on venture choices or suggestions dependent on sound thinking. Organizations may utilize their own monetary examiners who might stay with watch over the qualities and shortcomings and exhort upper administration as needs be.