ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Disadvantages of Cash Flow Generation

Updated on July 14, 2011

Some disadvatnages may exist when a company focuses solely on cash flow generation.


Companies often have an interest in making profits and generating cash for future business operations. While both activities typically have a close relationship, one may dominate the other. While cash is king in business, focusing solely on cash flow generation may be a disadvantage for a business. These drawbacks often require the business to balance its operations.

Cash flow generation may lead to lower sales. Selling goods and services involve cash receipts or allowing customers to pay over time, using an accounts receivable setup. Accounts receivable allow customers to pay outstanding balances off over time, such as 30 or 60 days. An issue with accounts receivable is the delayed cash collections. Cash flow decreases as accounts receivable increases. Companies that focus more on generating cash flow by selling goods and services for cash can have a myopic outlook in business.

Cash flow accounting may increase workloads in accounting. Accountants must record and report activities based on cash rather than traditional accrual accounting. In some cases, accountants may need to keep separate ledgers or accounts for measuring cash flow movement. The cash budget is an additional tool a company uses to track cash flow generation. This budget is outside of all the other budgets a company may also use in normal operations. Matching the cash budget with others is an extra activity for accountants.

The statement of cash flows is an additional statement accountants prepare at month end. This statement takes information from the company’s income statement and balance sheet. In short, the statement of cash flows transforms a company’s accrual-based income statement into a cash basis report. The statement of cash flows is often difficult to prepare as it takes standard accounting information and reverses its effect for cash flow purposes. The additional reporting must also meet generally accepted accounting principles and other requirements.

Most businesses use a combination of standard accounting and cash flow generation tools in business. Accountants can develop accounting policies that allow for both profit maximization and cash flow generating activities. Though the same ledgers, journals and schedules include information for these activities, the preparation and use of the information is the difference. Other times, a company will use a financial analysis employee in addition to standard accounting positions to measure cash flow generation.


    0 of 8192 characters used
    Post Comment

    • davidcollinsaus profile image


      5 years ago from Sydney, Australia

      Hi Oz. Again, all things being equal, I would rather invest in a company with $137b cash, than invest in a company with $136b cash or zero cash. I would also rather more cash flows than less. I think investors in Apple dislike their dividend policy, not their cash balance or cash flows. If Apple's cash balance is such a burden they could fix it easily. It is a lot harder to fix no cash and no cash flows, don't you think? David

    • oz-vitez profile imageAUTHOR

      Oz Vitez 

      5 years ago from Parts Unknown

      I am not sure Apple execs would agree. They have high cash levels and its considered a negative.

    • davidcollinsaus profile image


      5 years ago from Sydney, Australia

      Good Hub. I see what you mean, but all things being equal more cash is always better :-)

    • MyOfficeBooks profile image


      6 years ago from Brisbane

      Just stumbled across this article. Very interesting and clearly written. Will look forward to reading your other articles.

    • oz-vitez profile imageAUTHOR

      Oz Vitez 

      7 years ago from Parts Unknown

      Thanks, Reynold. I have worked for businesses on each spectrum. Though advantageous in certain aspects, focusing too much on cash flows can create difficult or myopic goals in business.

    • Reynold Jay profile image

      Reynold Jay 

      7 years ago from Saginaw, Michigan

      I was too small of a business to be concerned with this. Welcome to HUB writing. I enjoyed this very much. You have this laid out beautifully and it is easy to understand. Keep up the great HUBS. I must give this an “Up ONE and Useful.” I'm now your fan! RJ

      Based upon this HUB, you might enjoy…


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)