"Cash flow management"
- In any company, it is essential that money (i.e. cash) moves through the business
- without such continual movement of cash, a company cannot function
- a cash flow problem means that cash is not moving as required
- "Cash flow management" includes:
- "cash flow accounting"
- "cash flow analysis"
- "cash budgeting"
"Cash flow management" impacts most aspects of a company's operations
"Cash flow analysis"
- The main purpose of "cash flow analysis" is to reveal the causes of cash surpluses or shortages.
- The results of "cash flow analysis" allows conclusions to be made on the following issues:
- The sources of cash and its main uses within a company
- A company's ability to cover its expenses and current liabilities with cash inflows
- The company's cash inflows and whether or not it's sufficient to satisfy the company's current cash needs
- Differences between the profits earned and the cash available
"Cash flow" is generally analyzed according to the company's three main activities:
- operating
- investing
- financing
Cash flow from operating activities
- Cash flow from operating activities includes those cash receipts and expenditures which result from the company's core sales and production activities.
- Operating activities are the main source of the company's profit, so they should also be the main source of cash.
Cash flow from investing activities
- Cash flow from investing activities include cash receipts and expenditures from acquisitions and sales of fixed assets and other investments (e.g., short term investments in securities).
- The profitable company strives for expansion and modernization of its production capacities. In the short term, such investing activities will cause an outflow of cash.
Cash flow from financing activities
- Cash flows from financing activities include cash inflows from loans and issuance of equities, as well as outflows related to debt repayments and dividend payments.