What impact does the profit and loss statement have on liquidity planning?
September 3, 2022 | 50,00 EUR | answered by Fanni Ehrig
Dear Tax Advisor,
I am currently heavily involved in my liquidity planning and am wondering what impact the profit and loss statement has on this planning. I am facing the challenge of securing my future liquidity and therefore want to understand how the results from the profit and loss statement can affect it.
Currently, I am showing a profit in my profit and loss statement that appears positive at first glance. However, I have noticed that my liquidity is still not always sufficient to meet any short-term payment obligations. This leads to me sometimes having to resort to short-term loans to make my payments on time.
I am concerned that my profit and loss statement may not take into account all relevant factors that influence my liquidity. Therefore, I am wondering how I can better incorporate the results from the profit and loss statement into my liquidity planning to improve my financial situation and secure my liquidity in the long term.
Can you provide me with specific measures or tips on how I can analyze my profit and loss statement in a way that allows me to make my liquidity planning more effective? I am open to suggestions for improvement and look forward to your support in optimizing my financial situation.
Thank you in advance for your help.
Sincerely,
Dennis Lenzner
Dear Mr. Lenzner,
Thank you for your question regarding the connection between income statement and liquidity planning. It is good that you are deeply analyzing your financial situation and looking for ways to secure your liquidity in the long term. It is possible that a positive profit in the income statement does not necessarily equate to sufficient liquidity. There are various factors that can influence your liquidity and may not necessarily be reflected in the income statement.
To better link your income statement with your liquidity planning, it is important to not only focus on profit, but also keep an eye on cash flows. Profit is generated by the difference between revenues and expenses, but not all revenues and expenses directly impact liquidity. For example, you may have high depreciation on fixed assets that reduce profit, but do not have a direct impact on liquidity.
To improve your liquidity planning, you should analyze your income statement more closely and determine which positions actually have an impact on your liquidity. For example, you can check if your receivables and payables are appropriate, if you are managing inventory efficiently, and if your investments in fixed assets are burdening liquidity. Additionally, you can use liquidity metrics such as operating cash flow or working capital to better monitor your liquidity.
It may also be helpful to create a liquidity plan in which you forecast all inflows and outflows for a certain period of time. This way, you can identify bottlenecks early and take measures to improve your liquidity, such as optimizing payment terms or reducing inventory levels.
I hope this information helps you better link your income statement with your liquidity planning and optimize your financial situation. If you have any further questions or would like a more detailed consultation, I am happy to assist.
Best regards,
Fanni Ehrig
