I see the term “cash generation” thrown around a lot, and today decided to look up and understand what it really means.
Basically, (all the cash flowing INTO the business) minus (all the cash flowing OUT of the business), in a given time period = cash generation.
Two other related terms are accounts receivable and accounts payable. Accounts receivable means money that will flow into the company but hasn’t yet (e.g. sometimes a company only sends a customer a bill once a month, instead one bill per order). In other words, this is money that customers owe the company.
Accounts payable means money that will flow out of the company, but hasn’t yet (e.g. the money your company owe your suppliers). So this is the opposite of accounts receivable. If you make iPhones, and got your internal components from China, then your Chinese supplier would send you a bill say once a month. So the point here is, you may place and order, and receive the goods, but you don’t pay immediately. But you will pay eventually.
And that concludes my first blog post on Business Terms 101 for Dummies series.