Difference between Cash Flow and Working Capital
This is what is seen as your cash flow, which reflects how cash moves into and out of the business you own. In some situations, you may need to create a quarterly or yearly cash flow summary. However, the summary does not regard how your business’s current assets impact its financial responsibility.
As the net profits of your company reflect your expenses or liabilities against income, the summary will not accurately reflect net profits. A cash flow summary is basically a way of tracking and measuring how much revenue funds can be made from your company in a given time frame.
The main consideration in grasping the difference between cash flow and net working capital involves liabilities and assets. Unlike your costs in your cash flow statement, your working capital regards how your business’s outstanding debt amount compares to its current assets. For instance, if you have $10,000 as a current business loan, then you would hope to make payments periodically. However, an unexpected decline in your business’s customer base can lead to an inability to make periodic payments, and your lender may ask for full loan repayment at the month-end. Working capital lets you see what financial obligations can be solved by liquidating your current assets.
Unlike your cash flow report, WC does not routinely take into account planned monthly expenses which have remained unpaid, relative to loan or credit.