Cash Flow Analysis and Profit vs. Cash discussion

a.      Cash Flow Statement

Working and Calculations

In this inventory calculation at the first information about the beginning and ending inventory is collected from the balance sheet of the last two years. Then ending inventory is subtracted from beginning inventory to collect information about the current inventory or inventory of the selected period.

Inventories

Receivables

Receivables are calculated through subtracting ending receivables from beginning receivables.

Payables

Accounts payables are taken from the liability portion of the balance sheet of the company.

Drawing paid

              To calculate drawing or dividend paid information is extracted from both the financial statements income statement and balance sheet. Profit for the year and retained earnings related information is taken from the income statement. After adding up beginning retained earnings (previous year retained earnings), dividend proposed (itemized in the balance sheet), and transfer to the general reserves, the calculated amount was subtracted from the profit of the year. Thus dividend paid or drawing paid is calculated.

b.      Difference between Profit and cash

            Cash and profit are the financial terms commonly used in the business world. In the present times, cash and profit both are inevitable for the survival of a business. Above all, considering the importance of cash and profit in the business there is a need to discuss the difference between both business terms because cash and profit are also commonly misinterpreted as the same thing. Actually, cash and profit are quite different from each other. Cash is the physical form of money commonly used in our society and business to exchange goods and services. Companies pay cash to earn services or to purchase materials etc. while they earn back cash currency on sales of their goods and services. In short, cash can be used for expense related payments and as a source to increase revenue. While profit is the amount of benefit that a company earns after subtracting cost and expenses from revenue. Cash flow statement represents the inflow and outflow of cash in a business during a fiscal year. While profit and loss statement also known as income statement provides information regarding profit generated in a financial period. In the above-mentioned questions, cash increased during one-year duration was calculated as 163970 while income statement presented profit for the year as 133310.

            Credit or cash equivalent is the common alternative options or substitutes for cash. But companies cannot fully rely on credit sales or cash equivalent (Loughran, 2011). All-time transactions in credit or cash equivalent can reduce the liquidity and profitability of the company. Cash is essential to pay back short term obligations, to make payments for purchases, and to pay expenses. Therefore considering the importance of cash companies always keep optimal cash level in the business that reduces risk concerning with liquidity and profitability of the company. 

           Cash and profit both have equal importance in the business. If cash is the blood of the business then breath is the profit. Of course without blood human being cannot survive and without breath life is impossible. The main purpose of the cash is to work as a source to earn the profit. Because businesses are carried out to earn the profit, therefore, the importance of cash cannot be ignored in the business. Basically, cash is the only source to earn a profit.  Without cash, business is not possible and of course, without profit business is useless. There are some organizations currently working as non-profit organizations in different areas of the world. Keeping in mind such kind of organizations general conception is that without profit success is possible. But here the situation is quite different (Boyd, 2019). Non-profit organizations do not work to earn profit from there operations but in fact, instead of earning profit they run their operations from the grants and continuous investment from their investors or shareholders. But if the organization is not getting grant or charity then profit is essential for them to keep the business in running position. Cash facilitate business operations. Increase in cash is directly proportional to an increase in profit (unless cost and expense are also growing and covering the profit margin).