Sample Thesis Paper
Though the objective of every business is same which is earning profits but in order to operate and manage the business on a day to day basis the cash flows play a very important role and every business needs to manage them properly. A company needs not only to calculate the profitability for a particular period of time and the financial position at a certain date, it also needs to calculate the cash flows of a certain period to determine cash management and efficiency of utilising cash during a period. One interpretation of cash flows suggests that for any company “Net income is just an opinion, but cash flow is a fact” (Fernandes 2008 p. 1). This means that cash flows are much more important in the success of a company than the profit or earnings.
The profits are though important but the cash flows are necessary to perform various business operations, purchase raw material for production and for various other inputs in the business. According to Reider and Heyler (2002) “Cash is the fuel that powers the company….cash is the lifeblood of the organisation” (p. 8-12) which means that without cash the company cannot perform basic functions required to run the business smoothly and effectively. The most necessary asset to operate a large or small business is cash as all direct and indirect operations in a firm are related to cash. Cash flows serve as the most important element in a business whether it is a manufacturing, trading or service business.
The cash flow is given much importance in an organisation as without it the company cannot survive. The cash flow provides a reality check on a company’s financial position. There may be some losses in the early years of a business or during the course of business but a company can recover from these losses in subsequent years, but if there is a shortfall in cash the company may have to rely on undesired sources of cash which may impact the long-term growth of the company. This implies the importance of cash flows for any organisation whether it is a manufacturing, trading or service business (Berman, Knight and Case 2006).