The definition of net cash flow is used in the analysis of the financial condition of the company. This indicator is calculated at the end of each reporting period and characterizes the difference between the receipt of funds and their spending.
Instructions
Step 1
The method of calculating the net cash flow at an enterprise is used by its financial departments to control the receipt and expenditure of funds, and to analyze the financial equilibrium of the organization. It is recommended to do this not only when compiling statutory reports, but also after the expiration of each certain period, for example, a quarter.
Step 2
Net cash flow shows the difference between a positive cash flow in an enterprise and a negative one. Positive cash flow is the sum of cash receipts, which includes: income from the main, investment and financial activities of the company. Negative cash flow is, accordingly, the total result of funds spent during the implementation of the main, investment and financial activities of the organization.
Step 3
The main (production) activity of the enterprise is the main source of profit, therefore the receipt of funds from this type of activity is income from the sale of products (goods or services). The spending of funds in the main direction is payment to suppliers and contractors, the purchase of raw materials, materials, semi-finished products, equipment, etc.
Step 4
The investment activity of the organization is associated with the acquisition or sale of long-term assets, as well as with the receipt of profit from investments made in an earlier period. Income cash flow in this case is the receipt of dividends and interest, and expenditure is the purchase of intangible assets, such as obtaining a license to work, acquiring copyrights, rights to use land resources, etc. Also, expenses include the purchase of securities of other companies, i.e. e. financial investments with the aim of making a profit in the future.
Step 5
The financial activities of the company are aimed at increasing its capital to support two other activities. Income cash flow in this case is the receipt of short-term or long-term loans and income from the sale of shares of the enterprise. Expense stream - payment of dividends to shareholders and partial or full repayment of loans and borrowings received.
Step 6
Thus, net cash flow is the main financial indicator of an enterprise, which clearly indicates its financial stability and characterizes its growth in the market. Net cash flow is calculated for a certain period of time (reporting period).
