[SOUND] Guys, welcome back. Do you just remember what I said, the difference between profit and cash? Now, we're going to see very simple example to see how important it is for you that you going to set up a strategy, set up a budget, set up a financial report is going to discuss with a banking or financial market executive, whatever it is. You have to understand the difference between profit and cash. Later on you will be able to see that if a company is profitable, not necessarily that company will be able to generate cash in one year. Let's check. For example, we have here just very simple exercise. Let's assume you have just bought a car for $10,000 US paying 50% today and the remaining only after 60 days. At the same day, you sold the same car for $15,000 receiving just $1,000 today and the remaining in 90 days. That's the issue. The question that we have is, the second one. Let's assume also, the second problem, you have just bought a motorbike for US$ 6,000 today, the payment is due in 60 days (t60). At the same day (t0), today, you sold the motorbike for $5,000. The questions are, which transaction did generate cash? Which transaction did generate profit? They are difficult. Let's see. The first one, we know that you have just bought a car for US$10,000. You pay 50% today and the remaining only after 60 days. The same day, you sold the same car for for $50,000, receiving $1,000 today and the remaining 90 days. How would be the income statement? We know that sales are $15,000. That the amount of money, that amount of sale, you made it, $15,000. And how much it cost this car that you bought, $10,000. Then you end up with what? Well, this transaction will generate a profit of $5,000, do you see? This transaction generates a profit of $5,000. If you do not learn the difference between profit and cash, you will jump with happiness, but let's check what happened. Let's check the cash flow, for example, we know that this $10,000 we'll be paying 15% today and the remaining only after 60 days, at the same day you sold the car and you received just $1,000 today and the remaining in another 2 days. Let's check the cash flow, cash flow today we will receive just $1,000 despite that fact that the sales were $15,000. Today, we will receive just $1,000. And the cash outflow, how much you had to pay for that purchase? You had to pay $5,000. So today, you're going to have a cash outflow of $4,000. So despite the fact that this transaction will generate profit, today it generate a cash outflow. Is this a problem? It depends. Do you have working capital, to survive, for the next 60 or 90 days? If yes, you're fine. If you do not have, you have to knock down the door of a bank and get loan. So again, I insist, I know it sounds like a broken record, forgive me. But there's a huge difference between profit and cash. In this simple example, you just generate profit. But does not generate cash. That's a concept that we're going to use for the next lesson, which is working capital. You have to have a working capital. Let's move to another example. You remember what he said. You have just bought a motorbike for $6,000 today. The payment is due in 60 days. We're going to pay in 60 days which is good, you do not need to pay today, it seems it's going to be guilt for your cash flow. At the same day, today, you sold the motorbike for $5,000. Let's see, sale, $5,000 but you bought this motorbike pays $6,000. You had a loss, you had a loss of $1,000. This should be bad, at the meantime this should be bad. But let's check at the cash flow today. Cash inflow, you going to get $5,000 today. Why? Because you just sold the motorbike and the buyer is going to pay you today. Cash outflow today, none, you don't need to pay today so your cash inflow is $5,000. So despite effect of this transaction did not generate profit, but generate loss. It generate cash, it generate working capital. You have $5,000 in cash for the next 60 days to work out your operating activity in your company. We will revert again and again and again with this issue. Because as far affected, we do understand financial report, financial accounting, accounting report, balance sheet. Don't ever, ever forget the importance of cash for a company. Just to wind up, as we keep saying, saying, saying, I know we'll just repeat. That's my question. Is a profitable company always a good business? Not necessarily. Eventually a profitable company today might not generate cash. And if it does not generate cash, you check with your banker. You check with your financial executive. What makes a company go bust is lack of cash. Lack of working capital. Obviously that does not mean that a company that does not generate profit is going to generate cash. But never ever neglect cash. We will revert to you again, which is much more detailed with suspect to working capital. Because this is crucial. How a financial management should manage the working capital for company. We'll get back to you very soon. [SOUND]
