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Cash is the beginning and the end of all business activity. It is the bloodstream of every successful enterprise. Liquidity and profitability depend on how fast the ‘bloodstream’ of cash flow streams through the company.

The time it takes to turn invested money back into cash. In this context, the Anglo-Saxons speak of the ‘CASH FLOW CYCLE’ Money tied up in inventories and accounts receivable earns no interest. Management wants to keep the cash flow cycle short. 

The cash flow cycle focuses on four items on the balance sheet:

  1. Cash and cash equivalents
  2. Stocks
  3. Accounts receivables, and
  4. Supplier liabilities

Why is working capital a key indicator?

Working capital is current assets with less cash and cash equivalents and fewer short-term, non-interest-bearing liability. 

The higher the working capital, the more secure the liquidity position.

From an analysts perspective, negative working capital may is being viewed positively, as suppliers pre-finance company sales (especially retailers, and online clients)

The reduction in working capital positions accelerates the cash flow cycle by improving liquidity, and profitability

What are the cash flow ratios?

Cash flow from operating activities

Cash flow from investing activities

Cash flow from financing activities


Capex to depreciation

Capex to sales

So, now we know why to apply cash management.

Cash Management in Covid Times

If you want to generate cash continuously, apply a cash-management system that works.

RapidKnowhow suggests these five actions to succeed:

  1. Introduce a pass-through Price Formula Model.
  2. Reduce your total cost of ownership (TCO). The total cost of ownership (TCO) is the purchase price of an asset plus the costs of operation
  3. Optimize your cash-flow cycle by understanding the operational workflow. It begins with visibility into the operational workflow, from procurement (purchasing) to collections.
    1. First, improve timelines with your suppliers (increase) and clients (decrease).
    2. Next, apply cash-flow cycle management to increase the liquidity by turning your assets quickly into cash so that it can meet liabilities as they fall due
  4. Create and introduce an Electronic- Billing-System to reduce the time to billing and develop Multiple Revenue Streams such as asset sales, usage fees, subscription fees, lending/renting/leasing/, licensing, brokerage fees

Suggested Further Resources

Compete or Lead (1) Leading Digital Transformation

The 1-Hour Digital Leader – Case Study: How to Create an Agile Company Culture Successfully [Post-Merger]

The 1-Hour Digital Leader – 3 Steps to Appoint Your Digital Leaders in One Hour

The 1-Hour Digital Leader – How to Create Your e-Business Transformation Program in One Hour [InnovaGas]

The Successful Digital Business Starter – How to Turn Your Business Goal into Sustainable Cash Flow Rapidly


100 IFRS Financial Ratios, Cometis

The Open University, Professional Certificate in Management, Accounting and the PC for Managers, The Open Business School

Götz Hohenstein , Cash Flow Cash Management, GABLER Praxis