![]() Previous Chapter | Chapter List | Next Chapter In the next few chapters, we will explore ratios, starting with Profit Margins. Profit, on the other hand, is a product of accounting rules. If it’s less than RM1,000, then it’s a problem, as the business is paying out more cash than it receives.Īs you can see from this, the most critical objective of a business is to generate more cash inflow then outflow. If it’s more than RM1,000, then the business is good, as the business cash inflow is more than the cash outflow. egg, bread, margarine, coffee powder, etc.).Īt the end of the day, the owner will count the amount of cash in the cash register. Throughout the day, the shop receives payment for food and drinks, while paying suppliers (i.e. In the morning, when the owner opens the shop for business, let’s assume he/she places RM1,000 cash in the cash register. How is that possible? Let’s look at a simplified run through of the daily business operations. ![]() But yet, they have been operating and surviving for decades. If we ask the owner how much profit he/she generates in a year, I doubt they’d know the number. Let’s take the small traditional coffee shop owner. The main purpose of a business is to generate cash, not profit. I often ask, what is the purpose of a business? The standard reply I will get is that the purpose of business is to generate profit. Once KLIA2 became operational, MAHB needed to start repaying the financing undertaken, which explains the financing cash flow turning negative. Secondly, during the construction of KLIA2, MAHB had to undertake financing for the construction, which explains the increase in the financing cash flow and purchase of property, plant & equipment. Firstly, unlike MAHB’s reported profit, which fell substantially in 20 (see table 2 in page 85, under Chapter 9: Balance Sheet – Measurement of Financial Health), MAHB’s operating cash flow shows continuous improvement. Figure 1 shows the operating cash flow, financing cash flow, and purchase of property, plant & equipment (including costs of KLIA2) from 2010 to 2016. Let’s go back to the Malaysia Airports (“MAHB”) case earlier. Taking into consideration the initial cash balance of RM7,145,512 and changes in exchange rate of negative RM289, the end balance of TexCycle’s cash & cash equivalents was RM5,666,487, which is in line with the number reported in the balance sheet (see page 83). The net cash movement for financial year 2016 was a decrease of RM1,478,736. ![]() Net increase/(decrease) in cash & cash equivalentsĬash & cash equivalents at beginning of year ![]() Net cash (used in)/from investing activities Table 4: Increase/(decrease) in Cash (RM) Table 4 combines the impact of all three categories of cash flow. Table 4 is also a part of TexCycle’s cash flow statement. Table 3: Statement of Financing Cash Flow for the Year Ended 31 December 2016 (in RM)Ĭash flows from/ (used in) financing activities Table 3 is extracted from TexCycle’s cash flow statement. Financing activities include drawdown (inflow) and repayment (outflow) of bank borrowings, financing costs from loans, and dividend payment to shareholders. This cash flow shows the movement of cash due to a company’s financing activities. CHAPTER 10: CASH FLOW – THE LIFE LINE OF BUSINESS
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