Cash flow is a set of processes for the receipt and expenditure of money on settlement accounts of the enterprise. Typically, the total cash flow the sum of flows from different activities (operating, investment and financial, that is, the movement of funds is carried out in these three areas.
Cash flows from each activity are divided into input and output. For the main input flows are:
- revenue from sale of goods and services;
the income from interest payments on loans granted to other organizations;
- income from participation in other companies (shares in Charter capital, stocks, etc.);
- rent for the surrender of the temporary use of real property and equipment;
- other operating income.
The composition of the output streams, the main activities include:
- payment to suppliers and contractors;
- payments to workers and employees;
- settlements with budget and extra-budgetary funds;
- payment of interest on loans, bonds, etc.
Investment cash flow is generated through the sale and acquisition of fixed assets and securities financial investments in other companies and return the money for loans to other organisations.
Cash flow from financing activities reflects the receipt and expenditure of resources: investments of investors of Bank loans, that is, transactions related to long-term and short-term liabilities and equity. Input financial flows consist of originated loans, investments and funds for the sold shares, and output associated with the repayment of the loans, notes, bonds, repurchase shares and pay dividends.
Analysis of cash flow provides the management and the founders of the company the following information:
- does the company have enough resources to purchase fixed and current assets for future growth and development;
- need to attract additional sources of funding (Bank loans, third party investments);
- does the organization have sufficient available cash to pay off debts or invest in the development of new production.
For the analysis of cash flows in part of the financial statements included form No. 4 "Report on cash flows". It reflects the main receipts and payments by operating, investing and financing activities of the company, the difference between which is net inflow or outflow of money. A positive final value of the cash flow describing the financial condition of the company as good, while negative indicate a problem in generating money that can then lead the organization to bankruptcy.