In modern conditions, financial management due to limited financial resources is extremely important for almost any enterprise. Ultimately, its competitiveness and business success depend on how efficiently the organization controls and directs cash flows. The analysis of this indicator plays a large role in assessing the financial situation 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 particular 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 due to profit, etc. For a more complete disclosure of the essence of this term, we consider the classification of its components.
Types of Cash Flows
1. Depending on the scale of service of business processes:
- All over the enterprise. This is the most general view, which includes all the inflows and outflows of finance in this organization.
- By structural units. The latter can also be centers of responsibility.
- For specific business operations. It is the primary object of controlling cash resources.
2. Depending on the type of economic activity, cash flows are:
- on operating activities. It is associated with payments to suppliers and third-party performers of services related to production activities. This includes the salary 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 case of recalculation of excessively paid mandatory payments;
- on investment activities. It includes income and payments from financial and real investment, as well as income from the sale of intangible assets and disposal of 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 attracting loans, credits, additional unit or share capital, payment of dividends and interest due on deposits, etc.
3. By direction or end result:
- positive. This is a combination of all revenues from each type of economic activity. The expression “cash flow” is also used as an analogue;
- negative. The total amount of all payments in the process of the enterprise. In other words, this is a "cash outflow."
4. By the method of calculating the volume of cash flow is:
- clean. It is the difference between all receipts and expenditures of funds;
- gross. It characterizes all positive and negative flows for a particular period under consideration.
5. In terms of sufficiency:
- excess. Revenues exceed company needs;
- in short supply. The inflow of money is below the real needs of the enterprise.
6. According to the time valuation method, cash flows are:
- Present, reduced in magnitude to the current moment;
- Futures reduced in value to a specific forthcoming period.
7. By the continuity of formation:
- regular (as a rule, it is associated with operational activities);
- discrete (the result of one-time business operations, such as the purchase of a license, gratuitous assistance, the acquisition of a property complex, etc.).
8. By the stability of the time intervals during which they are formed, regular cash flows are:
- Regular at regular intervals within the considered period. An example is annuity.
- Regular with irregular 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 cash flows of the enterprise, regardless of its field of activity.
