The difference between inflow and outflow. The balance of accumulated real money
One of the concepts of modern financial management is the concept of cash flows (cash flows, CF). The term "cash flow" refers to the net cash result of the business of an enterprise.
Cash flows are determined during economic term the life of the investment (billing period), covering the time interval from the beginning of the project to its termination.
Settlement period breaks down into Steps - segments within which the aggregation of data used to assess financial and economic indicators is performed. Calculation steps are determined by their numbers (0, 1, ...). Time in billing period measured in years or fractions of a year and counted from a fixed moment t 0 = 0, taken as the base (usually the moment of the beginning or end of the zero step is taken as the base; when comparing several projects, it is recommended to choose the base moment for them the same). In those cases when the base is the beginning of the zero step, the moment of the beginning of the step with the number m denoted by t m ; if the base moment is the end of the zero step, after t m denotes the end of a step with a number m ... The length of each step may vary.
The value of the cash flow is denoted by (t), ( CF t ), if it refers to the moment in time t , or through ( m) (CF m ) if it belongs to the step m.
At each step, the value of the cash flow is characterized by:
- influx equal to the size cash receipts(or results in value terms) at this step ( NS m );
- outflow equal to payments at this step ( O m );
- balance (active balance, effect) equal to the difference between inflow and outflow ( NS m – O m ).
Cash flow (t) usually consists of flows from individual activities (Figure 3.4):
Cash flow from investment activitiesand(t);
Cash flow from operating activities 0 (t);
Cash flow from financial activities (t).
Rice. 3.4. Scheme of inflows and outflows Money enterprises
For a number of investment projects, strictly delineate flows of different types activities may seem difficult. In these cases, you can combine some (or all) of the streams.
The scheme of inflows and outflows of funds at the enterprise is shown in Fig. 3.4.
Enterprise cash inflow:
Revenue from the sale of goods;
Non-operating income;
Income from investments in securities;
Proceeds from the sale of surplus assets;
Release of working capital;
Sale of securities;
Attraction of loans.
Enterprise cash outflow:
Payments for raw materials, materials, components, purchased semi-finished products;
Fuel and energy payments;
Salary of staff with deductions for social needs;
Purchase of fixed assets and intangible assets;
Investments in the growth of working capital;
Payment of interest on loans;
Payment of dividends;
Repayment of liabilities for attracted capital;
Investments in additional funds ( additional contributions, securities);
Liquidation costs of an enterprise.
Along with cash flows, when evaluating an investment project, it is also used accumulated (cumulative ) cash flow - a stream, the characteristics of which: accumulated inflow , accumulated outflow and accumulated balance (accumulated effect) are determined at each step of the billing period as the sum of the corresponding characteristics of the cash flow for this and all previous steps.
When calculating cash flows attention should be paid to the fact that depreciation deductions included in cash inflows.
Depreciation is the process of transferring the value of fixed assets of an enterprise to the value finished products and reimbursement of this cost when products are sold in parts as they wear out. Therefore, the accrued depreciation expense is included in the cash flow.
When analyzing investment projects (choosing one or another evaluation criterion), it is extremely important to know the nature of cash flows. Distinguish between ordinary and extraordinary cash flows.
A cash flow is called ordinary if it consists of initial investments made at a time or in several steps of the calculation period, and at all subsequent steps the balances (inflow minus outflow) have positive values... If positive balances alternate in any sequence with negative balances, then such a flow is called extraordinary.
Rice. 3.5. Graphic representation of a hypothetical investment project: a - with an ordinary cash flow;b - with an extraordinary cash flow
In fig. 3.5 upward arrow characterizes the positive balance (inflow outflow); down arrow - negative balance.
Cash flows can be expressed in current , forecasted and deflated prices.
The current prices are named without inflation.
Forecast prices are called expected (taking into account inflation) at future steps of calculation.
Deflated forecasted prices are called, reduced to the price level of a fixed point in time by dividing by the general basic inflation index.
Cash flows can be expressed in different currencies. It is recommended to take into account cash flows in the currencies in which they are realized (receipts and payments are made), thereafter, bring them to a single, total currency [ 22] .
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One of the areas of corporate finance management is efficient cash flow management. Full assessment financial condition enterprise is impossible without analyzing cash flows. One of the tasks of managing these flows is to identify the relationship between them and profit, for which it is necessary to know whether the profit received is the result of effective cash flows or it is the result of some other factors.
To understand this issue, you need to understand what is meant by the terms "cash flow" and "cash flow".
Flow of funds - it is the transfer of money to someone, both in cash and non-cash. The movement of money is the fundamental principle, as a result of which finances arise, i.e. financial relations, cash funds, cash flows.
Cash flow the enterprise is the aggregate of all its receipts and payments for a certain period of time. In world practice, cash flow is called "cash flow" (English cash flow, although the literal translation of this term means "cash flow").
Cash flows differ from a simple transfer of money in a number of ways:
- o it is the result of monetary relations arising in the enterprise, which are the result of the movement of money;
- o organized and controlled processes;
- o processes that are limited to a certain period of time, that is, they have time limits - the beginning and the end;
- o cash flow as an indicator has a series economic characteristics: intensity, liquidity, profitability, sufficiency.
Degree cash flow intensity - it is an increase or decrease in its value over a certain period of time, i.e. intensive is the maximum flow.
Cash flow liquidity - this is the excess of positive (receipts) over negative (payments). Cash flow profitability is not an important characteristic, it is calculated, for example, as the ratio of net cash flow to inflows or outflows. Adequacy of cash flow is determined by its redundancy or scarcity.
Inflows (receipts) and outflows (payments) of money for a period of time are constituent parts cash flow. The aggregate of inflows or receipts is a positive cash flow, and the aggregate of outflows or payments of money is a negative cash flow.
Net cash flow - it is the difference between the sum of inflows and outflows. Net flow is one of the financial results activities of the enterprise along with indicators such as profit and profitability. Note that this is a specific result, since the company should not aim to increase net cash flow unnecessarily. The net flow can be either positive or negative. A positive cash flow is a positive net flow, and a negative cash flow is a negative net flow.
Positive net flow, or positive cash flow, can be excessive or scarce. Excess flow means a significant excess of cash flow over demand. Deficit cash flow characterizes the opposite phenomenon, when receipts are insufficient to cover the need. Negative flow, of course, is always in short supply. Redundancy and scarcity of cash flow are indicators that are close in content to such indicators as profitability and unprofitability (the use of the latter is also quite legitimate).
The interim estimate determines the cash flow as present and future. The present flow is determined in the assessment of the present time, and the future flow is determined in the assessment of some future specific point in time by discounting, i.e. making future cash flows comparable to the present.
The goal of cash flow management is to ensure a balance of positive and negative cash flows over time, synchronizing them weekly, every ten days or as needed.
Unbalanced flows make the cash flow as a whole illiquid at some point, and the enterprise insolvent. Obviously, the main ways of balancing flows are:
- o increase in cash in the turnover of the enterprise and, above all, its own;
- o increase in receipts due to additional sales;
- o reduction of payments.
Balanced cash flow is liquid. The indicator is the liquidity ratio, which is defined as the ratio of positive flow (inflows) to negative (outflows). Minimum value this indicator is equal to one.
The balance of the cash flow is ensured by its planning, first of all, by developing an operational financial plan, the so-called payment calendar. It is developed for a month with a frequency of 5, 10, 15 days. The peculiarity of the payment calendar is that the company first determines all its cash expenditures for a month, and then seeks sources of funds to cover the costs if cash income is insufficient. Development of an economically sound payment calendar is one of the prerequisites for effective cash flow management.
As already noted, cash flows are associated with cash inflows and outflows (Table 8.1).
Table 8.1. Cash inflows and outflows by type of activity
Tributaries |
Outflows |
Primary activity |
|
|
|
Investment activities |
|
|
|
Financial activities |
|
|
|
The need to divide the activities of the enterprise into three types (main, investment, financial) is explained by the role of each of them and their relationship. If the main activity is the main source of profit, then investment and financial activities are designed to contribute, on the one hand, to the development of core activities, and on the other, to provide it with additional funds.
By by and large dividing the activities of the enterprise into types - this is one of the ways to ensure a balance of receipts and payments of the enterprise. For these purposes, enterprises develop a plan for cash flows for the quarter (Table 8.2).
Table 8.2.
Thus, the main objects of cash flow management are:
- o positive flow - tributaries;
- o negative flow - outflows;
- o cash balance.
Cash flow planning for the year is carried out using the so-called cash budget, which is also called the cash flow budget, or, as it is often called, the cash flow budget, abbreviated as KB, BDP, BDDS. The enterprise's budgets are developed, as a rule, for one year, but this can be done for three or six months, or for another period.
Some businesses plan cash flows for certain types income and expenses, assets and liabilities, etc.
The main ways to strengthen the finances of enterprises are associated with the optimization of the funds used by them and the elimination of their deficit.
Enterprise finance is the most important category market economy... They play a decisive role in the system financial relations states, therefore professional management they contribute to solving not only the problems of enterprise finance, but also such problems as inflation, budget deficits, money-credit policy, development stock market, corruption, etc.
In addition to the indicators considered, when evaluating investment projects, other criteria are also used, including the integral cost effectiveness, coefficients financial assessment project (profitability, turnover, financial stability, liquidity), characteristics financial section business plan. Key categories underlying the rationale for a financial plan are real money flow, real money balance, and real money accumulated balance.
When implementing an investment project, investment, operating and financial activities and cash inflows and outflows corresponding to these types of activities are distinguished.
A stream of real money F (t) call the difference between the inflow and outflow of cash from investment and operating activities in each period of the project
F (t) = F i (t) + F o (t).
Real money balance D (t) Is the difference between the inflow and outflow of cash from investing, operating and financing activities:
D (t) = F i (t) + F o (t) + F f (t).
A prerequisite acceptance of the project is the positive value of the balance of accumulated real money in each period of the project. It is determined by the formula
S D (t) = D (n).
Positive value D (t) indicates the availability of funds in the period t , negative - about their lack and the need to attract additional own, borrowed or borrowed funds or reduce operating costs.
The choice of certain indicators of investment efficiency is determined by specific tasks investment analysis... Degree of objectivity investment decision largely depends on the depth and complexity of assessing the effectiveness of investment activities based on the set of formalized criteria used. In addition, making an investment decision regarding a specific investment project involves taking into account not only formalized, but also non-formalized (meaningful) methods and criteria.
Topic: Problems of capital investment budget optimization
Quite often when budgeting capital investments a number of limitations have to be taken into account. For example, there are several attractive investment projects, but the company, due to limited financial resources, cannot implement them all at the same time. In this case, it is necessary to select projects for implementation in such a way as to get the maximum benefit from investment. As a rule, the main goal in such cases is to maximize the total NPV. Let's consider the most typical situations requiring optimization of investment allocation. More complex optimization problems for investment portfolios are solved using linear programming methods.
1. Spatial optimization
Spatial optimization of the capital investment budget is carried out under certain conditions:
¨ total amount financial resources for a specific period (for example, a year) is limited from above;
¨ there are several independent projects with the total volume of required investments exceeding the resources available to the enterprise;
¨ it is required to draw up an investment portfolio that maximizes the total possible capital gain.
At first glance, the portfolio should include all projects with the maximum NPV value. This is the simplest solution, but not necessarily the best. In addition, if the number of competing projects is large, then enumerating options for compliance with the limit on the amount of total investment can be quite tedious.
Depending on whether the projects under consideration lend themselves to fragmentation or not, it is possible different ways solving this problem. Let's consider them sequentially.
Real money flow is the difference between the inflow and outflow of funds from investment and operating activities in each period of the project. The flow of real money appears in the calculations of commercial efficiency as an effect at the t-th step (Et).
A necessary condition for the adoption of the project is the positive value of the balance of accumulated real money in each period of the project. A positive value indicates the availability of funds in period t, a negative value indicates a lack of funds and the need to attract additional own, borrowed or borrowed funds or reduce operating costs.
None of the listed indicators by themselves is sufficient for the adoption of the project. The choice of these or those indicators of investment efficiency is determined by the specific objectives of the investment analysis. The degree of objectivity of an investment decision largely depends on the depth and complexity of assessing the effectiveness of investments based on the set of formalized criteria used.
The decision to invest in a project should be made taking into account the value of all the listed indicators and the interests of all participants. An important role in this decision should also be played by the structure and distribution in time of the capital involved in the implementation of the project, as well as other factors that lend themselves only to meaningful (and informal) accounting.
Commercial efficiency the investment project is determined by the ratio of costs and benefits that provide the required rate of return. Commercial efficiency can be calculated both for the project as a whole and for its individual participants.
Indicators of budgetary efficiency reflect the impact of the project on the income and expenses of the republican and local budgets.
The main indicator of the budgetary efficiency of the project is the budget effect, which is used to justify the measures of state support laid down in the project.
The list of items of budget income from the implementation of an investment project includes:
· Tax receipts and rent payments;
· Increase in tax revenues from other enterprises;
· additional income to the budget income tax with wages workers;
Receipts to budgetary and extrabudgetary funds (social security fund and state fund employment promotion), etc.
The budgetary costs associated with the implementation of the project include:
Funds allocated for direct budget financing project;
· Payments of benefits for persons who are left without work;
Credits of the National Bank, allocated as borrowed money subject to compensation from the budget, etc.
The economic efficiency of an investment project reflects the impact of the investment project implementation process on the external environment for the project and takes into account the ratio of results and costs for investment project that are not directly related to the financial interests of the project participants and can be quantified.
The urgency of the problem and the lack of recommendations in methodological developments and literary sources give reason to offer their own vision of solving this problem. In my opinion, a weighted average rate discount. In general, discounting methods are more perfect than traditional ones: they reflect the laws of the capital market, making it possible to assess the lost profit from the choice of a particular way of using resources, that is, the economic cost of resources. However, in their pure form, these criteria can only be used in a perfect market. To analyze investments in conditions of uncertainty, incomplete information, etc., it is necessary to modify the criteria. The main problem when using the criteria for discounting cash flows is the choice of the discount rate.
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The difference between cash inflows and outflows is called net cash inflows (outflows) from investing activities.
3. Cash flow in connection with financial activities reflects the way in which funds are raised to finance the activities of the company, as well as for payment to the holders of its securities.
Sources of cash receipts are, as a rule, investors who buy shares of the company for these funds, and lenders who lend funds against its bonds, promissory notes and mortgages. The outflow is directed to the owners of the company's shares (in the form of dividends and other payments, as well as payment for the shares they buy back) and to the company's creditors (in the form of payment of the main part of the debt).
Interest payments on debt are related to the cash flows associated with the core business. The difference between the receipt and expenditure of funds is called the net inflow (outflow) of funds in connection with the financial activities of the company.
4. Consequences of changes in the exchange rate of foreign currencies - an increase or decrease in the cost of funds in foreign currency expressed in national currency when converting or converting from one currency to another. This heading is present only in the reports of companies conducting overseas operations.
5. Reconciliation of accounts is carried out in accordance with the requirements of GAAP on the need to show the cash flow in the report - opening balance, change and ending balance.
Investment and financial activities without the use of cash, involving the use of other assets as a means of exchange, not cash (for example, the transfer of shares or the assumption of debt obligations in exchange for land or equipment), are reflected in a separate table or in the footnotes to the statement of cash flows funds. Combined transactions are also reflected, where settlements are carried out both in cash and other assets.
Compilation methods
A cash flow statement can be prepared in two ways.
Direct method. The cash flow balance from operating activities is calculated by summing all cash flows from operating activities and subtracting from the resulting amount all costs arising from operating activities. In a similar way, balances are summed up for all the other types of activities identified above, after which the final balance of cash flows is calculated.
Indirect method. To obtain a balance of cash flows in connection with the main activity, all costs not related to the payment of cash are added to the net profit indicator (from the income statement or balance sheet), and primarily depreciation (quantification of impairment of fixed assets as a result of their use). From the amount received, items leading to an increase in assets or a decrease in liabilities (an increase in receivables or a decrease in payables) are deducted, and items leading to an increase in liabilities (an increase in payables) are added to net profit. That is, all items that do not imply cash flow are added to and subtracted from net profit, and the result (balance) obtained corresponds to the balance of cash flows. In other words, net profit is considered as a balance of cash flows, adjusted by the balance of transactions that do not imply the flow of cash (money). The reverse procedure is used to obtain the cash balance.
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