Analysis of cash flow to enterprises is aimed at forming an indicator of its well-being. This economic value is a mathematical function of the change in the amount of cash over time. In relation to this concept, the words "inflow" and "outflow" are used, characterizing, respectively, the inflow and outflow of funds.
Instructions
Step 1
Cash flow is an economic term that means a constant flow of funds. This is the distribution of the inflow and outflow of funds in the course of the company's activities in terms of the real time of their occurrence.
Step 2
Cash flow can be represented as a mathematical function, the graph of which is a visual display of the company's activities. Thus, the cash flow shows the financial potential of the enterprise, the efficiency (profitability) of its work. The need to present reports on the movement of money appeared in the system of international standards relatively recently, however, it is the most characteristic indicator of the dynamics of cash in the enterprise.
Step 3
Three types of cash flows are analyzed: cash flow resulting from the main, investment and financial activities of the company. Data from the balance sheet and profit and loss data are used to compile the relevant reports.
Step 4
In fact, the main cash flow is a modification of the income statement, because it records income and expenses exactly at the time of their actual occurrence. Modification of the report is called transformation, which involves two approaches: direct and indirect.
Step 5
The direct approach implies the transformation of each item of the report and most fully reflects the cash flow. The indirect approach is based on the amount of net profit calculated on the accrual basis. It is then adjusted to return to net income on a cash basis by adding expenses (for example, depreciation) and subtracting non-flow income.
Step 6
The analysis of the cash flow of the main (operating) activity of the company is understood as the flow of funds aimed at carrying out business operations (purchase of raw materials and equipment, sale of finished goods, payment of salaries to employees, interest on loans, taxes). This flow is the starting point for determining the financial stability of the enterprise.
Step 7
The company's investment activities are aimed at investments in fixed assets, securities, lending, etc. Analysis of the cash flow of investments helps to make the most efficient use of the company's temporarily available funds.
The financial activity of the company involves the provision of two other types of activities, namely obtaining loans, income from the sale of the company's own shares. Expenses in this case represent the payment of dividends and repayment of loans.
