É Possivel Ter Lucro E não Ter Capital De Giro?

Is It Possible

Is It Possible To Have Made A Profit And Have No Cash?

Mauricio de Vasconcelos Bezerra

Woodbury University

FINA 360.BT: Financial Management

September 9, 2013

Is It Possible To Have Made A Profit And Have No Cash?

On the twenty first century companies did come up with many ways to acquire cash for their daily basis need. Every company, no matter how big or small they are, needs cash to maintain their normal routine and that involves meet payroll, pay suppliers, meet debt payments and make distributions to owners. But the real question is, can a company have made profit and has no cash? The answer is yes, net income and cash flow are two different concepts of a company, and not always they walk together to help the company strive and succeed. After reading this paper you will learn the differences between those two concepts, and learn how to avoid having a low cash flow level that could possibly bring put your company in danger.

Net Income is a tool to measure the financial success of your company’s operations, and it is a relationship between your pricing and volume activity. A company does not necessarily have to be paid by their clients in order to have revenues, once the transaction is complete it already shows as part of the company assets in the balance sheet, but it can show as “cash” or “accounts receivable”.

On the other hand cash flow shows how capable of meeting its financial obligations a company is. One important information is that a company does not even have to sell anything to have a positive cash flow, since cash can be provided by lenders or owners, and not only generated by operations. But another important question that needs to be answer is, what can you do to avoid waking up next week and realize that your company does not have enough cash flow to meet its financial obligations?

One of the major problems that companies have to avoid is having poor collections practice. It is understandable that a company should sell as many products as they can in a price range that can exceed break-even point in order to provide itself the capital to meet its financial obligations, and sometimes in order to sell those products a company extend credit to their clients hoping that they will be able to pay them back in the future. But a poor collection practice can put in jeopardy the future of the company. In order to avoid this a company should aggressively manage receivables by offering discounts to clients that are willing to pay their debt before the due date, and track accounts receivable and avoiding clients that tend to take more time to pay their debts.

At the same time it is important to carefully manage payables in order to make your cash flow more efficient. Try to make use of your cash flow as long as possible, take advantage of your creditor payment agreements, and try to make payments on the last day they are due. It is also important to evaluate vendors’ offers of discounts for early payments when a company has enough cash flow to meet all their financial obligations.

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