Responses to Others

Your responses to two classmates’ postings must be 50-75 words and should be thoughtful, substantial, and polite — not just a “well done” phrase or “I agree.” Consider points of agreement, disagreement, assumptions, and value judgments. You should provide new insight or constructive comments.

POST 1.

Profits and Cash flow vary notably in terms of their impact on a business. “The key difference between cash flow and profit is while profit indicates the amount of money left over after all expenses have been paid, cash flow indicates the net flow of cash into and out of a business.”(HBS 2020)
Cash flow is measured on an intermittent basis and is determined by specific team periods. Monthly operating cash flows for example refers to the net cash generated by the corporation after normal business operations within a month. This specific metric is crucial to identify if the corporation has the positive cash flow required to grow the business in that specific time period.

Profit on the other hand is an indicator of the money left over after all operating and capital expenditures have been paid. “It’s possible for a company to be both profitable and have a negative cash flow hindering its ability to pay its expenses, expand, and grow. Similarly, it’s possible for a company with positive cash flow and increasing sales to fail to make a profit—as is the case with many startups and scaling businesses.”(HBS 2020)
While higher profits are a great business objective, meeting the cash-flow needs of the business requires careful planning and orchestration. It’s crucial to understand the different impacts negative cash flow and positive cash flow has on your business.

References:
Harvard Business School Online, Cash Flow vs. Profit, Retrieved on 11/14/2022 from https://online.hbs.edu/blog/post/cash-flow-vs-profit#:~:text=The%20Difference%20Between%20Cash%20Flow,and%20out%20of%20a%20business
Quickbooks Intuit, Critical Difference between Profit and Cash Flow, Retrieved on 11/14/2022 from https://quickbooks.intuit.com/r/cash-flow/critical-difference-profit-cash-flow/

POST 2.

There are different types of profit, including gross, operating and net profit:

• Gross profit is the revenue for the company minus the cost of goods sold.
• Operating profit refers to only the profit the company makes from its operating/normal business operations.
• Net profit is the revenue of the company after all expenses have been deducted.

Similarly to profit, there are different types of cash flow, including operating, investing and financing cash flow:

• Operating cash flow is the amount of cash that the company is making off of their current business operations.
• Investing cash flow is the amount of cash a company is generating from investments (securities or sales of assets).
• Financing cash flow includes debt, equity and dividend payments – it defines how cash moves between different parties (i.e. creditors, investors, etc.)

“The key difference between cash flow and profit is while profit indicates the amount of money left over after all expenses have been paid, cash flow indicates the net flow of cash into and out of a business” (Stobierski, 2020).

Managers should keep their eyes on both cash flow for their specific departments. Cash flow is important to watch because it determines the amount of money that is coming in and out of the company. With a positive cash flow, there will be no money to cover monthly expenses moving forward, so it is important that managers are aware of this financial aspect to ensure that their projects can be delivered on time. This will also make sure that managers are not overspending and provide insight into how they can continue to grow their business (Jacob, 2018). While profit is also important, I would argue that cash flow is more critical to keep a close eye on in a regular cadence. “When a business is focused purely on profit and not on cash flow it can be like watching the speedometer without paying attention to the gas” (Gani, 2020).

Sources:

Gani, Z. (30 March 2020). “7 Reasons why you should focus on cash flow in your business.” Medium. https://medium.datadriveninvestor.com/7-reasons-why-you-should-focus-on-cash-flow-in-your-business-1988ca98fedf

Jacob, A. (2 March 2018). “The Benefits of Good Cash Flow Management.” Ordermentum. https://www.ordermentum.com/blog/the-benefits-of-good-cash-flow-management#:~:text=Managing%20your%20cash%20flow,you’ll%20need%20to%20spend.&text=Your%20employees%20are%20the%20%22frontliners,staff%20are%20hard%20to%20find.

Stobierski, T. (21 April 2020). “Cash Flow vs. Profit. What’s the Difference?” Harvard Business School. https://online.hbs.edu/blog/post/cash-flow-vs-profit#:~:text=The%20key%20difference%20between%20cash,and%20out%20of%20a%20business