Untitled-29

Cash Management and Marketable Securities^205

Business Cash Flows

The net effect of these delays will have been mitigated because one must hope that
sales values will have been in excess of the relevant outlays; i.e., they will have a mark-
up for profit. This profit, however, has to cover three further items, listed below:

l The majority of businesses will require fixed assets-land, building, plant, machinery,
motor vehicles, etc. (The outlay on these is shown at the bottom right of the chart
as capital expenditure.) This disbursement has to be made before profits can be
earned, and will only be recouped over a prolonged of time, the recovery being
represented by a ëdepreciationí charge in arriving at the profit mark-up. Although
it is not shown on the chart it is possible to impose a delay factor on acquisition of
fixed assets in various ways.

l Profit, after allowances for capital expenditure, will give rise to demand for
tax. The tax payment will probably occur sometime after a profit has been
earned, but will be eventually be a complete loss to the cash system of the
business;

l The suppliers of capital to the business must be remunerated. Interest payments
will be required periodically and regularly, although dividend payments will be
made only if the profits are considered sufficient to justify them. But both types of
payments will again be losses to the cash system.

Cash flows will be managed, therefore, by controlling:

1. Working capital the control of debtors, stock and creditors


2. Profit margins;


3. Capital expenditure


4. Taxation - tax management is a highly specialised subject outside the scope of this
   study

Fresh Capital Sales, Profit (^) Stocks
(^) Debtors
Overdraft
Cash credit
Cash
Cash Receivables
(^) Creditors Purchases
Wages
Expenses
Dividends &
Interest
Capital
Expenditure
Tax