You run the milk tea shop. You buy ingredients from a supplier and sell milk tea to business customers; the cash box and profit below belong to your shop.
Four things you just saw
- Scenario 1
The day the milk tea is delivered, profit goes up ¥1,200; the money only arrives on day 14. Selling and getting paid are two different events.
- Scenario 2
The more you sell, the tighter the cash box gets: three weeks of profit come to ¥50,400, while the cash box falls from ¥15,000 to ¥2,400. Growth eats cash first.
- Scenario 3
The same ¥36,000 of profit, and only because the payment terms differ, the cash boxes can be ¥25,200 apart after 30 days.
- Scenario 4
Money gets stuck on the shelf and with customers, and it also borrows the supplier’s time. For one batch of ingredients, the shop’s own money is out for 17 days.
Their names
Accounts Receivable (AR)
Why?
Money for goods already sold that customers have not paid yet. Revenue is recognised on delivery; collecting it only moves it into the cash box and creates no new profit.
Working Capital
Why?
Receivables + inventory − payables. Across scenario 4’s whole line: ¥6,000 + ¥25,200 − ¥4,200 = ¥27,000. When it grows it absorbs cash; when it shrinks it releases cash.
Operating Cash Flow
Why?
Profit, plus expenses that do not move cash (such as Finance 01’s depreciation), minus the increase in working capital. Scenario 4: profit ¥36,000 → operating cash flow ¥9,000.
DSO · DIO · DPO · CCC
Why?
14 days waiting for customers + 10 days on the shelf − 7 days the supplier gives = 17 days. CCC describes how long money is tied up in the process; it is not a cash forecast, and shorter is not always better.
Finance 02 · Episode summary
Profit has appeared, but the money may still be sitting in receivables and inventory. Next episode: can the cash support a second shop?
Next · Finance 03 · The second shop →What this episode cannot establish
- Customers here always pay as agreed: bad debts, partial payments, returns, late payments, early-payment discounts and selling receivables to a finance company (factoring) are not in the model.
- In practice, DSO is an average calculated from receivables on the books and sales over a period; when sales are changing it will not match the contract’s payment days exactly.
- In practice, a cash gap is usually filled with a loan or the owners’ money. That is financing, which this episode leaves out; tax is not included either.
Concepts on this page
Open a concept for Chinese, Japanese and English terms and an explanation.
CashView details
- 中文
- 现金
- 日本語
- 現金
- English
- Cash
Money available at a point in time, distinct from cash flow over a period.
ProfitView details
- 中文
- 利润
- 日本語
- 利益
- English
- Profit
Revenue less the corresponding expenses over a period. These simplified lessons omit interest and income tax; profit is not always equivalent to EBIT.
RevenueView details
- 中文
- 收入
- 日本語
- 売上高
- English
- Revenue
Revenue recognized from sales of goods or services; payment may still be outstanding.
Accounts receivable ARView details
- 中文
- 应收账款
- 日本語
- 売掛金
- English
- Accounts receivable (AR)
Amounts owed by customers for sales already made. Collection converts a receivable to cash, rather than earning the profit again.
In this lesson：The ¥1,800 a customer owes you once the milk tea arrives, collected 14 days later.
InventoryView details
- 中文
- 存货
- 日本語
- 棚卸資産
- English
- Inventory
Materials or goods not yet consumed or sold. Payment for purchases and recognition of cost of sales may happen at different times.
Accounts payable APView details
- 中文
- 应付账款
- 日本語
- 買掛金
- English
- Accounts payable (AP)
Amounts owed to suppliers for purchases already made. Delayed payment preserves cash temporarily but leaves an obligation.
Working capitalView details
- 中文
- 营运资金
- 日本語
- 運転資金
- English
- Working capital
Here: receivables plus inventory minus payables, an operating definition. Other contexts use current assets minus current liabilities.
Cash flow from operations CFOView details
- 中文
- 经营活动现金流量
- 日本語
- 営業活動によるキャッシュ・フロー
- English
- Cash flow from operations (CFO)
Net cash generated or consumed by operations, reconciled from profit by adjusting non-cash expenses and working capital changes.
Free cash flow FCFView details
- 中文
- 自由现金流
- 日本語
- フリー・キャッシュ・フロー
- English
- Free cash flow (FCF)
These lessons use operating cash flow less capital expenditure. Definitions vary in practice and should be stated.
Days sales outstanding DSOView details
- 中文
- 应收账款周转天数
- 日本語
- 売上債権回転日数
- English
- Days sales outstanding (DSO)
Average time to collect sales proceeds. The lesson illustrates it with agreed customer payment terms.
Days inventory outstanding DIOView details
- 中文
- 存货周转天数
- 日本語
- 棚卸資産回転日数
- English
- Days inventory outstanding (DIO)
Average time inventory remains in the business before sale or use.
Days payable outstanding DPOView details
- 中文
- 应付账款周转天数
- 日本語
- 仕入債務回転日数
- English
- Days payable outstanding (DPO)
Average time taken to pay suppliers after purchases.
Cash conversion cycle CCCView details
- 中文
- 现金转换周期
- 日本語
- キャッシュ・コンバージョン・サイクル
- English
- Cash conversion cycle (CCC)
DSO plus DIO minus DPO. It describes timing of cash tied up in operations, not a cash forecast.
In this lesson：14 days waiting for customers + 10 days of inventory − 7 days before paying suppliers.