Cash Is the Life-Blood of Any Business and Without It Survival Is Very Unlikely.
Cash is the life-blood of any business and without it survival is very unlikely. Cash is normally regarded as "just an asset that a business needs to help it to function (Atrill & McLaney, 2004, p. 124)." Though this is true, cash is also one of the essential elements needed for a business to grow and prosper. The reason why cash is so important is because "people and organisations will not normally accept other than cash in settlement of their claims against the business. If a business wants to employ people it must pay them in cash (Atrill & McLaney, 2004, p. 124)." If a business doesn't have enough cash to pay its employees and suppliers, such a business will not prosper, and it would not take long before such a business ultimately
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It is the differences between a company's current assets and its current liabilities. The main aim of working capital management is to ensure that a company is able to continue its operations and that it has sufficient ability to meet maturing debts and upcoming business expenses. It uses the operating cash flow to understanding where the cash is coming from and going to and this is very critical to any business.
In the UK, cash flow statements are very important in the financial reporting requirements. For example, BT (British telecom) has annual reports which are used to help shareholders understand how their investment is doing. These reports also give people who are considering buying shares a good insight on how BT is doing. On the BT website, it states that in the annual report there is a "cash flow statement shows where the cash flowing through the business has come from and how it has been used, compared to the previous year. It is an important measure of the company's financial strength (www.btplc.com)." Most company knows the importance of cash flow statements so it is not surprising to find that it is a highly regarded financial statement used to give financial reports.
Atrill, P. & McLaney, E. (2004) Accounting and finance for non-specialists. 4th ed. placeEssex: FT Prentice Hall pp.1-18
BT (2006) Understanding annual reports: the basics. [Internet] BT Group.