Cash is the main instrument of settlements, the financial resources of the organization and the most liquid assets. Their competent management and systematic control of their movement ensure the stability of the company.
Cash flow is a set of processes of receipt and expenditure of money on the settlement accounts of an enterprise. As a rule, the total cash flow consists of flows from various types of activities: main (operating), investment and financial, that is, cash flow is carried out in these three directions.
Cash flows from each activity are divided into inputs and outputs. For the main input streams are:
- proceeds from the sale of goods and services;
- receipts from interest payments on loans provided to other organizations;
- income from participation in other enterprises (shares in the authorized capital, shares, etc.);
- rent for the lease of real estate and equipment;
- other operating income.
The structure of the output streams of the main activity includes:
- payments to suppliers and contractors;
- payments to workers and employees;
- settlements with the budget and extra-budgetary funds;
- payment of interest on loans, bonds, etc.
Investment cash flow is generated from the sale and purchase of fixed assets and securities, financial investments in other companies and the return of money on loans issued to other organizations.
The cash flow from financial activities reflects the receipt and expenditure of attracted resources: investments of investors, bank loans, that is, operations related to long-term and short-term liabilities and equity capital. Incoming financial flows consist of loans received, investments and funds for sold shares, and weekends are associated with the repayment of debt on loans, promissory notes, bonds, buybacks of shares from shareholders and the payment of dividends.
Cash flow analysis provides management and founders of the enterprise with the following information:
- whether the company receives enough resources to acquire fixed and circulating assets for further growth and development;
- is it required to attract additional sources of financing (bank loans, third-party investments);
- Does the organization have a sufficient amount of free funds to pay off debts or investments in the development of new production.
For the analysis of cash flows, form No. 4 “Cash flow statement” is included in the financial statements. It reflects the main receipts and payments for the main, investment and financial activities of the company, the difference between which is the net inflow or outflow of money. A positive final value of cash flow characterizes the financial condition of the enterprise as good, and negative means problems in generating money, which in the future can lead the organization to bankruptcy.
