Cash flow analysis

Questions: The concept of cash flow. Cash flow management system. Information base analysis. Methods of analysis of cash flows. Report of Cash Flows. Cash flow forecasting models of cash management and cash equivalents.


The concept of cash flow


The company's activity is closely connected with the movement of funds. Operations conducted now, cause or the expenditure of funds, or their receipt. Continuous process of cash flow over time is a cash flow. This concept is an aggregated, includes various types of cash flows serving the economic activities of the organization.

In accordance with international accounting standards on economic activities are three types of cash flows:

- Operating (main) activity;

- Investing activities;

- Financing activities.

Cash flows from operating activities are: cash payments to suppliers of raw materials (outsourced certain services provided by the operating activities); payroll personnel involved in the operation process and manages the process; company tax payments to budgets of all levels and extra-budgetary funds; other benefits associated with the implementation of the operational process. Reflect the receipt of funds from international buyers of products, from the tax authorities in the exercise of allocation of overpaid and some other payments provided by the accounting standards.

Cash flows from investing activities represent payments and cash flows associated with the implementation of real and financial investment, sales disposal of fixed assets and intangible assets, long-term financial instruments rotation of the investment portfolio and other similar cash flows serving the investment activities of the organization.

Cash flows from financing activities represent receipts and cash payments associated with the involvement of additional equity or share capital, obtaining long-term and short-term loans, payment of cash dividends and interest on deposits owners, and some other financial flows associated with the implementation of the external financing of business firms.

In the direction of the cash flow of the enterprise distinguish positive and negative cash flows. Positive cash flow - a set of cash flows to the firm from all types of business transactions, as an analogue of the term, the term "cash flow". Negative cash flow - a set of cash payments now in the process of implementing them all kinds of business transactions, as an analogue of the term, the term "cash outflow".

According to the method for calculating the gross and net distinguish cash flows. Gross cash flow - the totality of income or expenditure of funds in the period under review in the context of its individual intervals. Net cash flow - the difference between positive and negative flows (between the receipt and expenditure of funds) in the period under review in the context of its individual intervals. It is the most important result of the financial activities of the organization, largely determines the financial equilibrium and the rate of increase in its market value.

On the level of adequacy of the level of surplus and deficit distinguish cash flows. Excess cash flow is characterized by the fact that cash flows significantly exceeds the real needs of the company in their purposeful spending. Sign of the cash flow is a high positive value of net cash flow is not used in the course of economic activities. Scarce cash flow is characterized by the fact that the receipt of funds significantly lower than the real needs of the organization in their purposeful spending. Even with the positive value of the net cash flow it can be characterized as deficient if this amount does not provide routine need for expenditure of funds provided in all areas of business organization. The negative value of the net cash flow automatically makes this flow deficit. By the method of evaluation time distinguish the present and future cash flows. This cash flow is the cash flow of the company characterizes as a single comparable value shown in value to the current time. Future cash flow - a single comparable value of the cash flow of the company, reduced by the cost of a particular upcoming point in time. The concept of "future cash flow" defines the nominal value to identify it in the next moment (or in the context of the future period intervals), serves as the basis of discounting in order to bring to the present value.

By continuity of formation in the period under review distinguish regular and discrete cash flows. Regular cash flow characterizes the flow of income or expenditure of funds for individual business transactions (cash flow of one type), which is carried out in the period under review continuously at separate intervals of the period. Regularly is most kinds of money (financial) flows generated by operating activities of the organization: flows associated with servicing financial credit in all its forms; cash flows to ensure the implementation of long-term real investment projects. As part of the organizational life cycle predominant part of its cash flow is regular. Discrete cash flow reflects the receipt and expenditure of funds related to the implementation of individual business operations of organizations in this period of time. Characterized by a one-time expenditure of funds related to the acquisition of the integral property complex organization; buying a franchise license; receipt of funds by way of donations. When determining the minimum time interval of all cash flows organization may be viewed as discrete.

The scale of the economic process of service distinguishes cash flows of the company as a whole, according to the activity of individual structural units of individual business transactions. Cash flow of the company as a whole is the most aggregated view of cash flow, accumulating all kinds of cash flows serving business process organization as a whole. Cash flow by activity is divided into operating, investing and financing. Cash flow for individual structural units - a differentiation cash flow organization of individual departments, are self-control objects in the organizational and economic construction of the organization (responsibility centers). The system of economic organization process cash flows for individual business transactions constitutes the primary object of self-control.

Stability slots forming distinguish cash with uniform and non-uniform time intervals. Cash flows with uniform time intervals are regular cash flows with the same time intervals in the period under review, which have the character of an annuity. Uneven cash flows with a time interval - a regular cash flows with irregular time intervals in the analyzed period. An example of this can serve as a cash flow schedule of lease payments for leased property by the parties with irregular intervals of time for their implementation during the period of the lease asset.

The size of the cash flows organization is compared with a profit organization. Profit is an absolute indicator of the efficiency of the source of life and organization. Increase in the rate of profit growth creates a financial basis for self-financing for the implementation of expanded reproduction and meet the social and material needs. Due to the profit organization fulfills its obligations to the budget, banks and other organizations. However, between the value of the cash flows and the amount of profits, there are differences, which are as follows:

- Profit reflects the cash accounts and non-cash income over a period that does not coincide with the actual receipt of funds;

- In the calculation of profit on production costs are recognized after its implementation, rather than at the time of payment;

- Cash flow reflects the cash flows that are not included in the calculation of gross profit: depreciation, capital expenditures, taxes, fines, debt payments and the net amount of debt, loan and advances;

- The availability of funds makes no profit, and during the growth of the money prices gradually lose purchasing power. However, despite these circumstances, the presence of these most liquid assets for maximum risk reduction.

The only real source of funds received as a result of economic activity is the realization, in which the resulting net income increases the supply of liquid assets in the form of cash and receivables.


Cash management system


In an inflationary environment and the problem of non-payment crisis cash management organization is the most up to date, so you need to create a system of cash management, covering the main aspects of the management of the organization (management of non-current assets, inventories, accounts receivable and accounts payable, bank loans, sources of funding, including private capital).

The main purpose of such a system - to ensure maximum effectiveness of the organization in the current period and in subsequent periods.

In operation, the organization of its management should receive objective answers to the following questions:

- The extent to which and from which source the money, what are the main directions of their spending;

- Can the company as a result of ongoing activities to ensure the excess of cash receipts over payments and how stable such excess;

- Whether the organization is able to pay its current obligations;

- If there is enough of the profits to meet its current needs of the organization in money;

- Sufficient own funds for investment activities;

- Which explains the difference between the amount of the profits and the amount of cash?

The main objectives of cash management:

- Formation of sufficient cash resources to meet the needs of financial and economic activities;

- Analysis and optimization of the distribution of the generated volume of financial resources for all activities and areas of use;

- Ensure the necessary level of market stability in the operation of the organization;

- To maintain the required level of the current solvency and increase the level of solvency in the long term;

- Maximization of net cash flow that promotes economic growth rates at the expense of domestic sources of financing.

The main components of the control system: accounting and cash flow analysis; cash flow analysis for all activities; budgeting of funds on the basis of the results of the analysis and consideration of the impact of environmental factors functioning.


Information base analysis


Information base - balance sheet, income statement, statement of cash flows. Report of Cash Flows included in the financial statements and comply with International Financial Reporting Standards. The report contains information about the cash balances at the beginning and end of the reporting period, the directions of movement of funds on current, investing and financing activities. Each part of the report is based on a single principle: first records all parameters characterizing the cash flow and then - all indicators characterizing the cash outflows. At the end of each part reflects the net cash flow by activity - as the difference between the entered and vybyvshimi cash. Using data from the financial statements for at least two periods and methods of analysis, in particular, horizontal (for the assessment of cash flows); vertical (to assess the structure of cash flows); trend (to identify trends in the components of cash flows) and factor (to assess the impact of changes in one stream to another), you can not only control the current solvency, but also to take quick decisions on the management of cash flows, identify the reasons for changes between financial performance and cash.

The main objective of cash flow analysis - identifying the level of adequacy of formation of funds, efficiency of their use in the operation, as well as the balance of positive and negative cash flows of the company in terms of volume and time.

Insufficiency of funds in the organization or expansion of production can lead to significant loss of profit, competitiveness, deterioration or loss of market share of the organization.

Analysis of cash flows for the whole organization, as well as by major economic activities of its individual structural units (responsibility centers) is advantageously carried out in stages as follows:

The first stage - the analysis of the dynamics of the volume of the formation of a positive cash flow organization in the context of individual sources. Compares the growth rates of positive cash flow from the assets of the firm growth rates, volumes of production and sales. Particular attention is paid to the study of the ratio of funds raised through internal and external sources to identify the degree of dependence of firms on external sources of funding.

The second stage - the analysis of the dynamics of the volume of negative cash flow of the company, the structure of the flow in the directions spending money. Determined by the proportionality of the firm at the expense of spending money, certain types of its assets to ensure growth of market value, and in what areas used funds raised from external sources; the extent to which repaid principal amount borrowed earlier loans.

The third stage - the analysis of the balance of positive and negative cash flows in total volume and time. The dynamics of net cash flow to be an important indicator of effective financial activities of the organization, as well as an indicator of the level of the balance of its cash flows as a whole. Is determined by the significance of the net profit in the formation of net cash flow, assessment of factors influencing its growth, that is largely influenced the growth of net profit: an increase in the number of output and lower production costs, increase product prices, increase profits by selling operations. Reveals the degree of adequacy of depreciation from the standpoint of the necessary updating of fixed assets and intangible assets. In order to establish the degree of balance in cash flows used indicators: the average value of cash flow; standard deviation; coefficient of variation; correlation coefficient.

The fourth stage - analysis of the dynamics of the main factors that characterize the quality of cash flows, the effectiveness of management in an organization (the liquidity ratio, solvency ratio, adequacy ratio of net cash flow, cash flow efficiency ratio, the ratio of reinvestment of cash flows, the profitability of positive cash flow, return on average cash balance funds). To assess the financial position of the organization used liquid cash flow, which characterizes the change in net credit position of the organization (the difference between the amount of loans received by the organization, and the amount of funds) during the reporting period. The analysis results allow managers to identify the company not only the dynamics of the cash flow, but also how they are used in the normal course of business, if their volume provides financial stability and solvency of the company, if there is enough money to finance activities in the future.

The fifth stage - optimization and planning cash flow of the organization. Results of the analysis are used to identify the reserves optimize financial flows organizations and their planning and control for the upcoming period.

Optimization of financial flows of the organization is one of the most important functions of cash management, aimed at increasing their efficiency in the planning period. The main optimization problem: the identification and implementation of provisions that allow the organization to reduce its dependence on external sources of raising funds; ensuring a better balance between positive and negative cash flows in time and volume; ensuring closer links cash flows of the economic activities of the organization; increase the amount and quality of the net cash flow generated by the business activities of the organization.

Planning of financial flows in the context of the organization of various kinds of predictions is due to the uncertainty of some of its presuppositions. It should take into account various alternatives calculation under different scenarios of baseline factors (optimistic, realistic, and pessimistic).

Ensuring effective control of cash flows organization whose objects are: fulfillment of the established targets for the formation of the volume of cash and cash expenditure for specified areas; uniform formation of cash flows over time; liquidity cash flows and their effectiveness. These indicators are monitored in the monitoring process of the current financial performance of the organization.

To forecast the financial situation of liquidity planning is performed cash flow, which characterizes the change in net credit position of the organization (the difference between the amount of loans received by the organization, and the amount of funds) during the reporting period.

Methods of analysis of cash flows


In accordance with international accounting standards and established practice for the reporting of cash flows used two main methods - direct and indirect. These methods differ in the completeness of reporting of cash flows of the organization, the source information for the development of reporting and other parameters.

The direct method is based on an analysis of cash flow on account of the enterprise and allows to analyze the main sources of inflow and cash outflow direction, to reveal the structure of the cash flows for each activity, to establish the relationship between the implementation of monetary and revenue for the period, to determine the sufficiency of funds for payments on current obligations and the need for additional sources of funding. By using the direct method is carried out analysis of changes in positive and negative cash flows generated by the cash method of inclusion in the report of economic turnover related to monetary transactions.

Indirect method aimed at obtaining data on the net cash flow of the enterprise in the reporting period. Source of information for the development of reporting cash flows of the enterprise by this method are the balance sheet and income statement. The calculation of net cash flow indirect method is carried out by type of economic activity of the organization as a whole. It is based on the analysis of balance sheet and income statement, which allows you to show the relationship between different activities, to establish the relationship between net income and changes in assets of the entity during the reporting period. With the indirect method the financial result is transformed through a series of adjustments to the amount of change in cash flows for the period. Adjustment is made by installments. At the first stage of a correspondence between the financial results and its own working capital. In the second stage is set corresponds to a change of its own working capital and cash, change is detected on each article of working capital, and it is reflected in the cash position. Such adjustments are carried out on all the activities. Despite the fact that this is a very complicated process, such correction tables provide valuable management information. They can be used to control the current solvency, assess the possibility of additional investment. Using the indirect method for calculating cash flow allows to identify the impact of each factor affecting the net profit organization, to determine the potential formation of the organization of the main domestic source of funding for its development - the net cash flow from operating and investing activities, as well as to reveal the dynamics of all the factors affecting its formation.


Report of Cash Flows


The purpose of the statement of cash flows - the calculation of the required amount of cash and determine when the organization is expected to lack or excess cash to avoid crises and rational use of funds. Estimates of expected receipts and cash payments for a certain period are called a cash budget, which is part of the core budget of the organization. The accuracy of the pledged in cash budget performance depends essentially on the subjective assessments of forecasts, such as sales, collection of accounts receivable.

The cash budget should include all cash receipts and payments for each activity: operating, investing and financing. Draw up reports on the main activities taking into account the desired dynamics of change are:

- An increase in accounts receivable, accounts payable, advances from customers, marketable securities and taxes payable;

- Decrease in accrued expenses, inventory items;

- Depreciation.

The planning results from operating activities used in the planning of investments and identifying sources of funding. Planning investment activity is carried out on the basis of investment projects and programs for the development of the enterprise. In this section of the statement of cash flows data recorded on the acquisition of real fixed capital (tangible assets), the amount of net cash used in investing activities. When planning the cash flow from financing activities focus on items such as notes payable, long-term debt (in the dynamics of their size should decrease) Proceeds from issuance of common stock, pay dividends. Cash flow budget organization is presented in Table 4.


Table 4 - Budget cash flow organization


source of Income

Amount,. Tenge

1 Cash at beginning of period


2 Income




Sales by operating activities:


collection of receivables


on the current implementation


advances received


Other sales


budget and targeted funding


Loans and borrowings


Dividends and interest receivable


Penalties and interest receivable


Total cash flow for the period (item 1 + item 2)


3 Payments of all


3.1. By operating activities:


payment of material and energy


services from




3.2. Capital Investments:


purchase of machinery and equipment


3.3.Uslugi by


3.4. Payments to the budget


3.5. Payments on loans


Projected cash budget allows you to:

- To get a holistic view of the total cash requirements;

- Management decisions on a more rational use of resources;

- Analyze significant deviations according to budget and to assess their impact on the financial performance of the company;

- Timely identification of the need for the amount and timing of liabilities.

Lack of funds in the organization leads to disruptions in production and financial processes, and excess indicates that the administration does not know how to place profitable financial resources in order to generate additional income. Existing inflationary pressures over time depreciate financial resources.


Cash Flow Forecasting


Cash flow forecasting organization is a prerequisite for the financial management process, business planning, relationships with consumers, suppliers of raw materials and potential strategic partners.

Rhythm of payment discipline of the enterprise depends on the mutual linking cash outflows and inflows. Linking is a synchronous flow of funds to the accounts of creditors and debtors. Cash received from debtors for the products to borrow, with a slight time lag used for payments to creditors.

Excess cash inflows over outflows directed to increasing the economic potential of the company (purchase of fixed assets and current assets), as well as the payment of dividends. With insufficient funds to cover short-term accounts payable used loans or paid (if any) insurance reserve funds, usually in the form of marketable securities.

In a market economy it is necessary to forecast cash flows to make them predictable, transparent.

There are various methods of forecasting cash flows. They usually involve the construction budget funds in the planning period, this takes into account only the main components of the flow: the volume of sales, the share of the proceeds in cash, payable forecast. The forecast is carried out for a period in the context of time periods: one year by quarters, the year in the context of months.


Forecasting technique


The first stage - forecasting cash flows for the unit period. The main source of funds is the sale of goods or services, which is divided into the sale of goods for cash and deferred payment. In practice, most companies tend to determine the average period of time it takes customers to pay bills. Based on this calculated what proportion of revenue for products sold will go in this unit period, and which - in the following. Then balance method estimates changes in accounts receivable and cash flows are calculated. The second stage - forecasting cash outflows of time periods. The main components are: repayment of accounts payable, wages of personnel, administrative and other expenses, the payment of taxes, dividends. At the "stretching" payable lost benefits provided by suppliers, accounts payable becomes costly source of funding. The third stage - calculation of net cash flow (excess or deficiency) in single periods. Compares projected cash receipts and payments, net cash flow is calculated. The fourth stage - the definition of the total demand for short-term financing in the context of time periods. Based on the results of the third stage determines the size of short-term bank loans for each unit period necessary to ensure the projected cash flow. When calculating the amount of money is taken into account at the beginning and end of a single period, the projected minimum size of funds in the account organization to perform normal activities, as well as possible not predicted in advance profitable investment. The projected minimum cash can be set based on the specifics of the organization, taking into account the need for a minimum of resources to get started and the projected rate of inflation.


Management model of cash and cash equivalents


The efficiency of management of financial flows is significantly affected by objective prediction of the optimum size of funds, since, on the one hand, the lack of cash can lead to bankruptcy of the company, on the other hand, excessive accumulation of money is not an indicator of well-being, because the company loses profits that could receive as a result of investing the money. This leads to the "immobilization" of capital and reduces the effectiveness of its use. Consequently, one of the main objectives of financial management is to find a compromise between the desire, on the one hand, to protect themselves from situations of chronic lack of funds, on the other hand, invest available cash in the business in order to generate additional income. Cash management system should provide for and control of the cash, the state and the duration of storage reserves, state receivables and duration of accounts receivable, accounts payable for the state and the period of settlement with creditors. Accounts payable can be controlled through a period of settlement with creditors, increasing or decreasing the duration of the settlement with them. As a result, you can adjust the amount of cash in the account to determine the feasibility of additional short-term funding sources. The combined influence of these components of assets and short-term source of funding is set with the duration of the financial cycle. If enterprises in the analyzed period there are no working capital, the value of the duration of the financial cycle will be negative. The smaller the value, the more effective use the funds invested in the activity of the enterprise, the more effective management policy not only production and sales activities, but also to improve the quality of policies in relation to creditors. Monitor the effectiveness of cash flow is performed by the turnover ratio, which is calculated by dividing the sales revenue on the balance of funds in the same period. Increasing the value of this parameter indicates the effective use of cash allows ceteris paribus increase sales without changes in working capital, reducing costs, increasing profits. There are several options to accelerate cash is received: speeding up the process of billing customers and clients; personal activity manager receipt of payment; the concentration of banking operations (funds accumulate in local banks and transferred to a special account where they accumulate); Getting cash from the accounts on which they lie without use. If an organization lacks the cash, and payments must be carried out for the current needs must be a certain amount of money, you can defer payments or to use the instrument. Cash payments can be delayed by using calculations with suppliers checks.

Cash represents a special case of investment in material assets, so they must meet the following requirements:

- Need a basic supply of funds to meet current payments;

- Need some money for unforeseen expenses;

- It is advisable to have a certain amount of available funds to enable or projected expansion. Cash can be applied models of inventory control. They help to optimize the amount of money that must be kept in a current account at the box office. An example of a cash management model is the model of Baumol and Miller-Orr. Baumol model assumes that the company begins to work for him with the maximum level of cash, and then gradually consumes them. All funds from the sale of goods and services are invested in short-term securities for a profit. Once depleted cash reserves, that is close to zero or below a certain target level of safety, the company sells part of securities and thereby replenish the supply of funds to the initial value. Thus, the dynamics of the balance of the current account is a "sawtooth" plot. Baumol model acceptable to the Organization, cash costs are stable and predictable, which is rare in practice. Direct application of these models in the domestic practice is still difficult due to inflation, high interest rates, lack of development of the securities market. Miller-Orr model answers the question: how the company should manage the money supply if it is impossible to predict the daily outflow and inflow of funds? In constructing the model uses the Bernoulli process - a stochastic process in which the receipt and expenditure of money from period to period are independent random events. Account balance varies randomly until until it reaches an upper limit. Once this occurs, the organization begins to buy securities in order to return the reserve funds to some normal level (cusp). If the stock of money reaches the lower limit, the company sells its securities and replenish cash reserves to normal levels. When deciding on the scope of variation (the difference between the upper and lower limits) recommended to adhere to the following policies: if the daily variability of cash flows or high costs associated with the purchase and sale of securities, are large, then the company should increase the range of variation, and vice versa.

It is also recommended to reduce the scale of variation, if it is possible to generate income due to the high interest rate on the securities. Implementation of the Miller-Orr model is carried out in several stages:

- Sets the minimum amount of funds in the current account;

- According to the statistics defined by the variation of the daily flow of funds to the account;

- Are determined by the cost of storage on current account and the costs of transformation of funds in securities;

- The scope of variation calculated cash balance on the current account;

- Calculated upper limit of funds in the current account, above which it is necessary to convert part of the funds in short-term securities;

- Determined point of no return - the value of the cash balance on the current account to which you want to return if the actual balance on the current account goes beyond the boundaries of the interval (upper used to determine the range of variation of cash, going beyond which involves embedding a free cash funds in the most liquid securities, or the reverse procedure. border; the lower bound).


  Questions for self-control

1. What role does the statement of cash flows?

2. What are the main functions of the statement of cash flows?

3. List the main features of the classification of cash flows of the company?

4. What is included in the accounting system of cash?

5. What methods are used to determine the cash flows?

6. What is the liquid cash flow?

7. What is the difference between the concepts of "cash flow" and "net cash flow"?

8. What is the essence of the indirect method of analysis of the statement of cash flows?

9. What is the essence of the direct method of analysis of the statement of cash flows?

10. What are the main stages of the analysis of cash flows of the company?

11. How is the assessment of the quality of cash flows?

12. By what method is estimated balance of cash flows?

13. For what purpose was conducted factor analysis of cash flows?

14. How is the cash flow forecasting?

15. What are the goals and objectives of the control system of cash flows?

16. What is the main objective analysis of cash flows?

17. Describe the main problem of optimizing cash flow.