MANAGEMENT STRATEGY

Respond to the following in a minimum of 175 words. Remember to in-text cite and then reference materials where required. As a note, most of the initial response questions require demonstrated research.

Discuss the Following in a Single Initial Reply:

1) This may seem like an obvious one, but it is important to understand the differences in financial management. Who can describe the difference between cash flow, profit, and net income?

2) What is the definition of working capital in practical terms? Additionally, where do we find working capital in financial statements?

3) Equally important, who can present some basic ideas on where we go when trying to raise capital?

ANSWER

Management Strategy

1) This may seem like an obvious one, but it is important to understand the differences in financial management. Who can describe the difference between cash flow, profit, and net income?

A profit entails the financial benefit realized when the revenue generated from the business activity exceeded the expenses, taxes and costs. Any profit acquired is funneled back to the business owners, who can either pocket it or reinvest it into the business. On the other hand, net income entails the profit a company has earned for a given period. Finally, cash flow is the cash going in and out during a firm’s day to day operations.

2) What is the definition of working capital in practical terms? Additionally, where do we find working capital in financial statements?

Working capital in practical terms entails the money used in covering the short expenses of a company, which are due within a given year.  It is the difference between the current assets of a firm and the current liabilities.   Working capital is used to purchase an inventory, payments of short-term debts, and help in the day-to-day operating expenses.

Working capital can be calculated using the current ratio (i.e., the current assets divided by current liabilities). When a ratio is above one, then the current assets exceed liabilities. This means that the higher the ratio, the better it is for the company.
3) Equally important, who can present some basic ideas on where we go when raising capital?

There are various ways in which business can raise capital. The first way is through bootstrapping the company, which can use the business capital to fund the venture. Another way of raising capital is by borrowing a loan from a financial institution, which will then need to be paid back at interest. A business can also raise capital by incorporating investors who could become shareholders to the company, given that they provide monetary support to the company.