Cashflow vs profit

• What is the difference between cash flow and profit?

  Cash flow is inflows minus outflows
• How is profit calculated?

  Profit is revenue minus costs
• What are three reasons why cash flow and profit are not the same thing?

  1. Credit sales delay cash inflow
  2. Depreciation affects asset value
  3. Bank loans create inflows, not revenue
• What happens when you offer credit for a sale?

  You record revenue without cash inflow
• What is depreciation in the context of non-current assets?

  Depreciation is the loss of asset value
• If a car is bought for $£10,000$ and is worth $£9,000$ after a year, what is the depreciation?


  $£1,000$
• What is the impact of taking out a bank loan on cash flow?

  It creates an inflow but is not revenue
• What costs are associated with a bank loan?

  Repayments and interest on the loan
• What are the pros of having positive cash flow?

  • Pay suppliers and employees on time
  • Handle unforeseen events
  • Take advantage of opportunities
  • Facilitate business expansion
• What are the consequences of poor cash flow?

  • Inability to pay suppliers on time
  • Ruined relationships with suppliers
  • Employee demotivation
  • Risk of bankruptcy or insolvency
  • Difficulty in expanding the business
• How does poor cash flow affect supplier relationships?

  It may ruin relationships due to late payments
• What can happen to employees if cash flow is poor?

  Employees may become demotivated
• What is a potential outcome of poor cash flow regarding business opportunities?

  You may miss out on opportunities
• What is the risk of being unable to handle unforeseen events due to poor cash flow?

  You could become bankrupt or insolvent
• How does poor cash flow affect business expansion?

  It makes expansion harder