Business Administration 2257 Study Guide - Final Guide: Cash Flow, Accounts Receivable, Accounts Payable
8 Apr 2020
School
Department
Professor
5. GROWTH
Measures improvement or decline in performance from year-year
How much has the profit growth (declined)? (high=desired)
Profit Growth
=𝐍𝐞𝐭$𝐈𝐧𝐜𝐨𝐦𝐞𝐘𝐫𝟐-𝐍𝐞𝐭$𝐈𝐧𝐜𝐨𝐦𝐞𝐘𝐫𝟏
𝐍𝐞𝐭$𝐈𝐧𝐜𝐨𝐦𝐞$𝐘𝐫$𝟏$
x 100
PROFIT GROWTH IS GOOD
How much have sales grown (declined)? (high= desired)
Sales Growth
=𝐒𝐚𝐥𝐞𝐬$𝐘𝐫𝟐-𝐒𝐚𝐥𝐞𝐬$𝐘𝐫𝟏
𝐒𝐚𝐥𝐞𝐬$𝐘𝐫$𝟏$
x 100
Sales growth is good BUT it should be proportional to profit growth (i.e. if sales growth is
increasing, but profit growth has decreased, then the additional sales were harmful)
How much have assets grown (declined)? (high= desired)
Asset Growth
=𝐀𝐬𝐬𝐞𝐭𝐬$𝐘𝐫𝟐-𝐀𝐬𝐬𝐞𝐭𝐬$𝐘𝐫𝟏
𝐀𝐬𝐬𝐞𝐭𝐬$𝐘𝐫$𝟏$
x 100
Asset Growth should be proportional to sales and profit growth.
Sales Growth without asset growth—expansions needed to support continued growth
Tracks all cash receipts and disbursements—allows companies to predict cash shortages
(take corrective action before a crisis occurs). Allows companies to see if large sums of excess cash
are lying idle-could be put to better use.
(Inflows- Outflows= Net Cash Flow/Cash Surplus or Deficit)
1. Identity nature and timing of cash INFLOWS
Inflows from financing: bank loans, capital infusions, proceeds from sale of fixed assets (usually 1-
time basis) (LOC ARE NOT)
Investment income collections- (sporadic) issue stocks/bonds
Collections from sales (recurring): sales forecasts, collections schedules
2. Identify the Nature and Timing of all cash OUTFLOWS
Cash operating expenditures: rent, supplies, inventory, sales commission, inventory levels (DL,
RM)
Capital Expenditures: purchase of equipment, machinery
Financial commitments: interest payments and/or principal repayments
Equity reductions: drawings, dividends
3. SUBTRACT outflows – inflows= net cash flow for the period—either surplus or Deficit
4. ADD (subtract) cash flow for the period to the E/B in cash from the previous period to get
new ending balance
