About Cash flow and Its Impact on Manufacturing Companies
About Cash flow and its effects for manufacturing companies. When we discuss a business entity, whether it is a service business, trading, or manufacturing, surely we will not be able to let go of one important aspect in it. The important aspects are: finance. Can be cash, cash equivalents, or other assets. What is clear, finance plays an important role in running a company's business.
And one important aspect of finance is cash flow.
What is cash flow and how does it affect a manufacturing company? This paper will try to answer it. The hope is also, by understanding this, you will be better able to maximize cash flow turnover to further advance your company.
So, let's start by discussing what cash flow is.
the total amount of money being transferred into and out of a business, especially as affecting liquidity.
Yes, literally, cash flow is just:
So, in a nutshell, cash flow involves all our buying and selling transactions to third parties. What is an example of liquid assets? We can say money or cash and cash equivalents (like money in a BANK, etc.). There is also a stock of goods whose value has been locked from HPP or from the acquisition price (without depreciation). And some other examples.
So, for example we buy goods, that's when cash flow occurs. Our money decreases and our supply increases. Likewise, when we sell goods. Money increases and inventories decrease. And remember, what counts as affecting cash flow is when money has changed hands. Debts and Receivables that are still classified as AP (Account Payable) and AR (Account Receivable) should not be considered as cash flow.
The next question is, why should not it be considered? The second discussion will try to answer it.
Now, back to cash flow, when discussing the company's business processes, it is only natural for companies to be more concerned with profit (income statement) than turnover. Because, after all profit is actually distributed when dividends. Not turnover. 🙂
But, one thing that must be considered by a company's accounting and finance department is, not just profit, but profit that has an effect on cash flow.
Why?
Because of the large profits, the company doesn't necessarily have a lot of money
Conversely, small profits, with the right cash flow management, can make companies still have a lot of money and can be rotated for various things.
Okay, maybe still a little confused. I will try to explain in a few brief illustrations.
For example, we have a high profit. Say 10 billion in one year. The question is, does the 10 billion actually exist in the company? Don't tell me, out of the 10 billion profit, 9 billion of them are receivables, which apparently aren't liquid from consumers? As a result, even though the company reported a profit of 10 billion, still money coming into the company, not up to 1 billion. It's hard to pay taxes.
On the contrary, the company reportedly only made 1 billion in one year. But thanks to bargains that are good at purchasing, the company has 9 billion in debt that does not need to be paid for the next 30 days. With the right sales projection, the company has physical money that can be used for a variety of other needs that could be profitable for the company, such as: buying raw materials in the form of cash which results in lower prices. Daily deposits that result in cash breeds also become one of the other benefits.
That is why, cash flow is more important than profit, profit is more important than turnover. But clearly, the company also still needs large profits so that cash flow can run smoothly. If the company has 9 billion in debt but does not have a profit projection to pay the debt, then it will be the same at the end.
And one important aspect of finance is cash flow.
What is cash flow and how does it affect a manufacturing company? This paper will try to answer it. The hope is also, by understanding this, you will be better able to maximize cash flow turnover to further advance your company.
So, let's start by discussing what cash flow is.
About Cash flow: Definition
Literally, the notion of cash flow is actually very simple.the total amount of money being transferred into and out of a business, especially as affecting liquidity.
Yes, literally, cash flow is just:
the total value of money that moves in and out of the business, mainly liquid or fixed.
So, in a nutshell, cash flow involves all our buying and selling transactions to third parties. What is an example of liquid assets? We can say money or cash and cash equivalents (like money in a BANK, etc.). There is also a stock of goods whose value has been locked from HPP or from the acquisition price (without depreciation). And some other examples.
So, for example we buy goods, that's when cash flow occurs. Our money decreases and our supply increases. Likewise, when we sell goods. Money increases and inventories decrease. And remember, what counts as affecting cash flow is when money has changed hands. Debts and Receivables that are still classified as AP (Account Payable) and AR (Account Receivable) should not be considered as cash flow.
The next question is, why should not it be considered? The second discussion will try to answer it.
About Cash flow: Its influence on company business processes.
I can say, cash flow is a real target that companies should pursue. Often companies are more concerned with turnover (minded turnover) and it can be fatal for business. About the dangers of minded turnover, I will discuss in another article, so that it is more complete.Now, back to cash flow, when discussing the company's business processes, it is only natural for companies to be more concerned with profit (income statement) than turnover. Because, after all profit is actually distributed when dividends. Not turnover. 🙂
But, one thing that must be considered by a company's accounting and finance department is, not just profit, but profit that has an effect on cash flow.
Why?
Because of the large profits, the company doesn't necessarily have a lot of money
Conversely, small profits, with the right cash flow management, can make companies still have a lot of money and can be rotated for various things.
Okay, maybe still a little confused. I will try to explain in a few brief illustrations.
For example, we have a high profit. Say 10 billion in one year. The question is, does the 10 billion actually exist in the company? Don't tell me, out of the 10 billion profit, 9 billion of them are receivables, which apparently aren't liquid from consumers? As a result, even though the company reported a profit of 10 billion, still money coming into the company, not up to 1 billion. It's hard to pay taxes.
On the contrary, the company reportedly only made 1 billion in one year. But thanks to bargains that are good at purchasing, the company has 9 billion in debt that does not need to be paid for the next 30 days. With the right sales projection, the company has physical money that can be used for a variety of other needs that could be profitable for the company, such as: buying raw materials in the form of cash which results in lower prices. Daily deposits that result in cash breeds also become one of the other benefits.
That is why, cash flow is more important than profit, profit is more important than turnover. But clearly, the company also still needs large profits so that cash flow can run smoothly. If the company has 9 billion in debt but does not have a profit projection to pay the debt, then it will be the same at the end.