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Part-1 Importance of Cash
Cash flow in company or in human life, shows most important part in terms of financial health of company or life satisfaction of human being respectively. In similar manner, if amount of cash invested in some project is less than the return cash earned from the same project than it can be said that company made profit. But if the outflow of cash is greater than inflow, than that is part of loss in organization.
Cash flow and profit and loss statement are totally different. Personal finance could be the best example to differ cash flows and P&L statement, as those expenses are not added in P&L sheet. Cash flows as per the name refers to cash flows in company during running. Deposit and withdrawal in account is common. Deposit can be from product sales, investment etc. While withdrawal is for many reasons such as, regular payment to employees, rent, bills, loans etc. Therefore, cash flows are totally related to inflow and outflow of cash. Profit and loss statements are calculation of period or term project. It gives amount of cash used and invested during that period. On the basis of that calculation, positive balance and negative balance will conclude as profit and loss (Satterley, 2017).
Managers and executives are the chair responsible person for the cash management. They can used different methods fort the calculation or prediction of cash flows for the projects. Information communication technology is one of the method that would be use for cash management. It focuses on three basic measure of financial department performance, cost saving, improvement in quality and enhancement in scenario for the decision making. On the basis of such methodology, performance of the company would be predicted and it can be helpful to further decision making for managers (San-Jose, Iturralde & Maseda, 2009).
Part 2: Application of Concepts: The Role of Financial Statements in Managerial Decision Making
Different financial statement could be used by the mangers in order to make financial decisions. Pro Forma statement is also one of the most important method used for making financial decisions. It basically analyze cash inflow and outflow of the organization along with activity, amount of debt in market, profitability and market value. Percent of sale is the simple method used for the development of pro forma statement. It involves the past financial performance of company in order to predict future situation.
Pro forma statements can be created in four following steps. Firstly, estimating projection of company’s revenue. Second, calculating amount of loans and line of credit. Third, cash flow estimation and last, preparing charts of accounts for the time period. All this calculation are generally prediction, managers used this method for the future financials situation company and all this values are updated as per time and condition (Pacific Crest Group, 2016).
