Understanding Operating and Cash Cycles
Cash flow within a business is the difference between the number of dollars that came in and the number of dollars that went out. While no formal financial statement presents this information, we can still calculate the cash flow. To have a comprehensive understanding of cash flow, we look at the following criteria:
Cash From Operating Activities
- Operating Cash Flow: Include the revenues minus the costs. These numbers include taxes but exclude depreciation and interest. This is a significant number because we can see how successfully a firm’s cash inflows cover everyday cash outflows.
- Change In Net Working Capital: As you make changes in your investments towards current assets, your current liabilities will also change. This is calculated by taking the difference between the beginning and ending networking capital figures.
Cash From Investing Activities
- Capital Spending: Net capital spending is the money spent on fixed assets net of any sales of those fixed assets.
Cash From Finance Activities
- Creditors: Your interest payments to creditors with a reduction of net new borrowings
- Stockholders: Your dividends are paid out by a firm minus new equity raised.
The Full Cycle CFO Difference
Why Choose Our Team For Your Accounting?
Operating and cash cycles can go hand-in-hand with cash flow projections. Your accountant should go into the complexity of how well your company is generating cash and profits. Understanding your business’s operating and cash cycles is a critical component of your strategy.
Full Cycle CFO offers this service because by following the business’ operating cycle, we can better understand when to produce more products to avoid shortages, delays, and stock outages. And, on the flip-side of that, to prevent over-production and having inventory sit. Full Cycle CFO has the team and expertise to give the outlook you need to make decisions to keep inventory and production in tune with the selling and generation of cash. It is a delicate balance that benefits from an expert’s point of view.
We will optimize your accounting systems so you can start focusing on other business growth needs – what will be your next step towards your next business goal?