Question

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 1

Question 1

Net Income is the company's remaining income or revenue after deducting the expenses. Net Income is also known as bottom line. While Cash flow is the cash generated from operating activities after deducting the operating expenses. It is the cash flow which reflects the development of the organization. Profit is similar to net income. Most accountants use these terms interchangeably.

Question 2

In practical terms, working capital is the capital required for day to day operations of a company. Working capital as a concept is the excess of current assets over current liabilities. Working capital as a single amount will not be shown in the financial statements. In the balance sheet, assets side, there will be fixed and current assets. In the liabilities side, there will be fixed and current liabilities. Working capital can be computed by deducting current liabilities from current assets. Working capital = Current assets - Current liabilities.

Question 3

For a company to raise capital, there are a lot of ways. The main two ways of raising capital are Debt and Equity. Debt capital refers to issue of debentures, long term loans etc. Equity capital refers to issue of equity shares. Other than equity shares, the company may issue preference shares. A public company may raise capital by issue of shares to public. Fresh issue of shares is possible through initial public offering (IPO). Later the shares can ne issued through stock exchanges. Private company cannot issue shares to the public. Its shares will be held by private parties.