Page 100 - Finance for Non-Financial Managers

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Profit vs. Cash Flow
tions in which the cash
flow will never affect prof-
process of spreading the
its, but most are cases Amortization The 81
cost of an intangible asset,
where the expense and the such as research and development
cash flow happen at differ- expenditures, over its expected useful
ent times. Business man- life. Intangible assets are amortized in
the same way as tangible assets are
agers often overlook these
depreciated.
timing differences because
they “know” the effects will
pretty much equal each other over time. But they forget how
significant such differences can be in the short term, when the
most critical cash flow planning is done.
Manager’s Checklist for Chapter 5
❏ Cash flows throughout every company in an endless
process that converts cash to operating assets and expen-
ditures and ultimately back to cash again. The secret is to
manage the process so that there’s more cash at the end
than at the beginning. The management challenge is to
know how well you’re succeeding at that when a company
is operating normally, with many cash cycles occurring at
the same time.
❏ Net cash flow is never the same as net profit; managers
must track both to be well informed about the financial
condition of their company. The best way to do that is to
ensure that monthly financial reports are prepared that
show both measures—cash flow and net profit.
❏ Managers in fast-growing companies always need more
working capital to support growth. They should consider
every opportunity to conserve cash for future growth by
such means as financing large purchases and arranging
backup lines of credit before they’re needed.
❏ Businesses routinely take on obligations that require large
amounts of cash, such as building inventories and extend-
ing credit to customers. Much of that investment is a nec-