I do not understand the cash flow of my corporations. Can you explain?



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I do not understand the cash flow of my corporations. Can you explain?

Corporations have income and cost. The income of a corporation comes from the sale of its products. The income results in the increase of the cash of the corporation.

The cost for the corporation includes several items. The cost of salaries that were paid to the workers is calculated as the salaries of workers in each workers group and the numbers employed by the corporation. The corporation also pays interest on loans it receives and it uses raw materials that it has to purchase on the market or in direct contracts.

The issue of raw materials is complex. Imagine a corporation uses oil as raw material. It uses 1 billion worth of oil every month. So you expect the cost to be 1 billion per month. But there are months that the corporation does not buy any oil. It may buy once in 6 months for 6 billion.

This means that the corporation will show 5 months of beautiful figures (No cost for oil and 1 billion reduction in cost can make it look successful), and then one month, it will have a 6 billion cost and make a huge loss. This is not the way things are done.

When the corporation is buying the oil, the cash goes down by 6 billion, but the value of the materials it has, goes up by the same amount. This means that the corporation spent cash but did not make a loss. The real cost for the corporation is what it is using in one month. So in many cases, it does not spend any cash (it has a big stock of oil), but the real cost for the corporation in that month is 1 billion because it did use materials for 1 billion and the value of the raw materials it has in stock is down by the same.

This is the reason why the cash flaw is not a straightforward computation.

To make all this a little easier, we are showing the cash at the beginning of the month, we show all the revenues and income that increased the cash and then show all the items that reduced the cash during the month.
We are also showing the revenue and real cost for the month and the resulting profit and loss.

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