IB Business Management 3.7.5 Relationship Between Investment, Profit, and Cash Flow Notes

The Relationship Between Investment, Profit, and Cash Flow

Your pizza shop received a huge boost on social media and you've been experiencing a surge in customers and business.

To accommodate this new demand, you decide to invest in a new oven, expecting it to boost production and profits.

However, this purchase drains your cash reserves, leaving you struggling to pay suppliers.

This scenario highlights how investment, profit, and cash flow—three critical elements of financial management link.

Investment: Short-Term Outflows for Long-Term Gains

Definition

Investment

The purchase of non-current assets (e.g., machinery, property) or financial assets (e.g., stocks, bonds) with the expectation of generating future returns.

How Investment Affects Cash Flow

Immediate Cash Outflows: Investments often require significant upfront spending, reducing available cash.

Delayed Returns: The benefits of an investment, such as increased revenue or cost savings, may take time to materialize.

Financing Options: Businesses may use loans or equity to fund investments, spreading cash outflows over time through repayments or dividends.

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Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

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IB Business Management 3.7.5 Relationship Between Investment, Profit, and Cash Flow Notes

The Relationship Between Investment, Profit, and Cash Flow

Investment: Short-Term Outflows for Long-Term Gains

How Investment Affects Cash Flow

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The Relationship Between Investment, Profit, and Cash Flow

Investment: Short-Term Outflows for Long-Term Gains

How Investment Affects Cash Flow

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Unit 1: Introduction to Business Management - Core operational components and business functions6 subtopics

Unit 2: HR Management - Motivation, Structure, Hierarchy7 subtopics

Unit 3: Financial Management - Accounting, Ratio evaluation, Core Financial Documents9 subtopics

Unit 4: Marketing Management - The 7 P's, strategies and forecasting6 subtopics

Unit 5: Operations Management - Production Methods, Production planning and management9 subtopics

BM Toolkit - Core business frameworks and tools15 subtopics

IB Business Management 3.7.5 Relationship Between Investment, Profit, and Cash Flow Notes

Unit 1: Introduction to Business Management - Core operational components and business functions6 subtopics

Unit 2: HR Management - Motivation, Structure, Hierarchy7 subtopics

Unit 3: Financial Management - Accounting, Ratio evaluation, Core Financial Documents9 subtopics

Unit 4: Marketing Management - The 7 P's, strategies and forecasting6 subtopics

Unit 5: Operations Management - Production Methods, Production planning and management9 subtopics

BM Toolkit - Core business frameworks and tools15 subtopics

The Relationship Between Investment, Profit, and Cash Flow

Investment: Short-Term Outflows for Long-Term Gains

How Investment Affects Cash Flow

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account

The Relationship Between Investment, Profit, and Cash Flow

Investment: Short-Term Outflows for Long-Term Gains

How Investment Affects Cash Flow

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account