In modern conditions, financial management, due to limited financial resources, is extremely important for almost any enterprise. Ultimately, the effectiveness with which an organization controls and directs cash flows determines its competitiveness and business success. The analysis of this indicator plays an important role in assessing the financial position of the enterprise.
The concept and essence of cash flow
In general, this economic term itself comes from the English phrase "cash flow", which can be translated as "cash flow". Cash flows represent the movement of the finances of the enterprise for a certain period of time. In other words, these are the differences between receipts and payments for a specific period. Using this indicator, you can identify exactly how the movement of money occurs, which is not always taken into account when determining profit: tax payments, investment expenses,loan payments, taxes on profits, etc. For a more complete disclosure of the essence of this term, consider the classification of its constituent parts.
Types of cash flows
1. Depending on the scale of servicing business processes:
- Across the enterprise. This is the most general view, including all the inflows and outflows of finance in this organization.
- By structural divisions. Responsibility centers can also act as the latter.
- On specific business transactions. Represents the primary object of controlling monetary resources.
2. Depending on the type of economic activity, cash flows are:
- on operations. Associated with payments to suppliers and third parties for services related to production activities. This includes the salaries of personnel involved in the operational process, as well as related tax payments. At the same time, this type of cash flow shows receipts from the sale of goods and tax authorities in the event of recalculation of overpaid mandatory payments;
- on investment activities. It includes receipts and payments from financial and real investment, as well as income from the sale of intangible assets and retired fixed assets, rotation of investment portfolio instruments and the result of other similar operations;
- on financial activities. This type is associated with the movement of money associated with the attraction of loans, credits, additional shareor share capital, payment of dividends and due interest on deposits, etc.
3. By focus or end result:
- positive. This is the total of all receipts from each type of economic activity. As an analogue, the expression "inflow of cash resources" is also used;
- negative. The total amount of all payments in the course of the enterprise. In other words, it is an “outflow of cash resources.”
4. According to the method of calculating the volume, the cash flow is:
- clean. Represents the difference between all receipts and expenditures;
- gross. Characterizes all positive and negative flows for a specific period under consideration.
5. By level of sufficiency:
- excessive. Income exceeds company needs;
- scarce. The inflow of money is below the real needs of the enterprise.
6. According to the method of evaluation in time, cash flows are:
- Real, reduced to the current moment;
- Future valued for a specific period ahead.
7. By continuity of formation:
- regular (as a rule, it is associated with operational activities);
- discrete (the result of one-time business transactions, such as the purchase of a license, gratuitous assistance, the acquisition of a property complex, etc.).
8. According to the stability of the time intervals during which they are formed, regular cash flows are:
- Regular with regular intervals of time within the considered period. An example is an annuity.
- Regular with uneven time intervals within the same period (for example, lease payments with a special payment schedule).
The above classification makes it possible to more fully and purposefully carry out planning, accounting and analysis of the cash flows of an enterprise, regardless of its field of activity.
