Cash flow management in conditions of inflation conclusion. Enterprise cash flow management. Cash flow management system
In the process of managing cash flows, it is necessary to take into account inflation, which over time depreciates the value of cash in circulation.
The influence of inflation affects many aspects of the formation of enterprise cash flows. In the process of inflation, there is a relative decrease in the value of individual tangible assets used by the enterprise (fixed assets, inventories, etc.); reduction in the real value of monetary and other financial assets (accounts receivable, retained earnings, financial investment instruments), etc. The inflation factor has a particularly strong impact on the long-term financial operations of an enterprise related to cash flow management.
The stability of inflation and its impact on the financial performance of an enterprise in the field of cash flow management determine the need to constantly take into account the influence of this factor.
The concept of taking into account the influence of the inflation factor in managing an enterprise's cash flows lies in the need to realistically reflect their value, as well as to ensure compensation for their losses caused by inflationary processes when carrying out financial transactions.
The methodological tools that allow taking into account inflation in the process of managing an enterprise's cash flows are differentiated in terms of basic calculations (Fig. 12.6).
- The methodological tools for forecasting the annual rate and index of inflation are based on the expected average monthly rates. Such information is contained in published forecasts of the country’s economic and social development for the coming period. The forecasting results serve as the basis for the subsequent inflation factor in the financial activity of the enterprise.
- When forecasting the annual inflation rate, the following formula is used:
where TIG is the projected annual inflation rate; TIM is the expected average monthly inflation rate in the coming period.
Using formula (12.20), not only the projected annual inflation rate can be calculated, but also the value of this indicator at the end of any month of the coming year.
- When forecasting the annual inflation index, the following formulas are used:
or IIG =(1 + TIM)12, (12.22)
where IIG is the projected annual inflation index; TIG - projected annual inflation rate (calculated using the previously given formula); TIM - expected average monthly inflation rate.
- The methodological tools for forming a real interest rate taking into account inflation are based on the projected nominal level in the financial market (the results of such a forecast are usually reflected in the prices of futures and options contracts concluded on the stock exchange) and the results of the forecast of annual inflation rates. The calculation of the real interest rate taking into account the inflation factor is based on the Fisher model:
p 1 + TI
where I p is the real interest rate (actual or predicted
in a certain period); I - nominal interest rate (actual or predicted in a certain period); TI - inflation rate (actual or predicted in a certain period).
- The methodological tools for assessing the value of funds taking into account inflation allow us to calculate both their future and present value with the corresponding inflationary component. These calculations are based on the generated real interest rate.
- When estimating the future value of funds taking into account inflation, the following formula is used (modification of the Fisher model):
where SH is the nominal future value of the deposit (cash), taking into account inflation; P - initial deposit amount; ip - real interest rate; TI - predicted inflation rate; n is the number of intervals at which each interest payment is made in the total stipulated period of time.
- When assessing the present value of funds taking into account the inflation factor, the following formula is used:
Pp = - -н -, (12.25)
[(+ip И1 + IT)]"
where Pp is the real present amount of the deposit (cash), taking into account the inflation factor; SH is the expected nominal future value of the deposit (cash); ip is the real interest rate used in the discounting process; TI - predicted inflation rate; n is the number of intervals at which each interest payment is made in the total specified period of time.
- The methodological tools for forming the required level of profitability of financial transactions taking into account inflation, on the one hand, allows for the calculation of the amount and level of the “inflation premium”, and on the other hand, the calculation of the general level of nominal income, ensuring compensation for inflation losses and obtaining the required level of real profit.
- When determining the required amount of the inflation premium, the following formula is used:
Pi _ R TI,
where PI is the amount of the inflation premium in a certain period; P is the initial cost of funds; TI - inflation rate in the period under review.
- When determining the total amount of required income for a financial transaction, taking into account the inflation factor, the following formula (12.27) is used:
Day _ Dr + Pi,
where Дн is the total nominal amount of the required income for a financial transaction, taking into account the inflation factor in the period under review; Dr - the real amount of required income for a financial transaction in the period under review, calculated using simple or compound interest using the real interest rate; Pi is the amount of the inflation premium in the period under review.
The dependence of the total amount of required income and the size of the inflation premium on the inflation rate can be presented graphically (Fig. 12.7).
lo
ae
Inflation rate
- When determining the required level of profitability of financial transactions, taking into account the inflation factor, the following formula is used:
dr
where UDN is the required level of profitability of financial transactions taking into account the inflation factor; Dn - the total nominal amount of the required income for a financial transaction in the period under review; Dr -
the real amount of required income from a financial transaction in the period under review.
Forecasting inflation rates is a rather complex and labor-intensive probabilistic process, largely influenced by subjective factors. Therefore, in asset management practice, a simpler method of taking into account the inflation factor can be used. For these purposes, the cost of funds during their subsequent increase or the amount of required income during its subsequent discounting is recalculated in advance from the national currency into one of the “strong” (i.e. least susceptible to inflation) freely convertible currencies at the rate at the time of calculations. The process of increasing or discounting value is then carried out at the real interest rate (the minimum real rate of return on capital). This method of estimating the present or future value of cash flows allows us to completely exclude the influence of inflation within the country from its calculations.
Abbasov Sarvar Alydzhan, Candidate of Economic Sciences, Associate Professor of the Department of Finance, Azerbaijan State Economic University, Baku, Azerbaijan
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Sources:
1. Van Horn, James K., Vahovir Jr., John M. Fundamentals of financial management - M.: ID Williams LLC, 2006. - 1232 p.
2. Dranko O.I. Financial management: Technologies for enterprise financial management - M.: UNITI-DANA, 2004. - 351 p.
3. Utkin E.A. Company management. – M.: “Akalis”, 1996. – 516 p.
4. Brigham Y., Houston J. Financial management. Express course. 4th edition – St. Petersburg: Peter, 2007. – 544 p.
5. Kovalev V.V. Financial analysis: methods and procedures. – M.: Finance and Statistics, 2006. – 560 p.
In modern economic conditions, many enterprises are forced to independently choose their development strategy and tactics. The enterprise's self-financing of its activities has become a top priority.
In conditions of competition and an unstable external environment, it is necessary to quickly respond to deviations from the normal activities of the enterprise. Cash flow management is a tool with which you can achieve the desired result of an enterprise - making a profit. These circumstances determine the choice of research topic.
The purpose of the thesis is to, in the course of analyzing the production and economic activities of the enterprise under study, develop recommendations for improving the cash flow management mechanism.
The object of the study is the process of cash flow at OJSC "Kurskkhimvolokno". The subject of the study is the mechanism for managing cash flows in an enterprise.
In order to achieve the goal, the thesis must solve the following tasks:
Consider theoretical approaches to the concept and essence of cash flows;
Analyze the main methods of cash flow management;
Determine the main indicators used in cash flow management;
Based on the analysis of indicators, develop recommendations for improving the cash flow management mechanism of the enterprise.
The practical significance of the thesis research lies in the development of specific measures to improve cash flow management at the enterprise.
The thesis consists of an introduction, three main parts, a conclusion, a list of references and applications.
The first part examines theoretical issues related to the concept and essence of cash flows of an enterprise, cash flow management in an enterprise, the role and importance of cash in the activities of the enterprise as a whole and as the most liquid part of working capital.
The second part discusses the basic methods of cash flow management, methods for assessing cash turnover, analyzing cash flows, and methods for calculating key cash flow indicators.
In the third, practical part, using the example of the enterprise under study, the state and movement of cash flows in the enterprise are assessed, and measures are developed to improve cash flow management.
The thesis used domestic and foreign developments and techniques in the field of cash management, sources of periodicals, as well as primary accounting documents for a number of periods.
The role of the financial market in the Russian economy is becoming obvious and significant: public debt, the ongoing process of privatization, capital accumulation by banks and industrial enterprises, individual savings of the population - literally everything is “closed” in the financial market.
This suggests that, operating essentially in a new economic structure, Russian manufacturing enterprises have moved to a wider use of market methods for regulating their business activities. The existing difficulties in the budgetary, monetary and payment and settlement spheres have an impact on the state and organization of finances of enterprises in economic sectors.
Any enterprise needs financial resources to expand production and increase profits. Their formation and use is carried out at two levels: nationwide and at each enterprise. The size and structure of sources for the formation of financial resources throughout the country determine the possibilities for growth of state budget revenues. The size of financial resources generated at the enterprise level determines the possibility of making the necessary capital investments, increasing working capital, fulfilling financial obligations, and meeting social needs. Such financial resources are generated from own funds - gross income (profit) and depreciation.
The financial market plays a major role in the formation of financial resources.
The financial market is a complex mechanism for the functioning of monetary resources that generate income depending on supply and demand, the solvency of sellers and buyers.
The financial market consists of relatively independent markets for means of payment. The most significant is the public capital market (money market), as well as the loan capital market. The securities market is playing an increasingly important role.
The public capital market is under the control of the Bank of Russia, which is the supporting structure of the financial market infrastructure.
The rapid growth of the refinancing rate objectively indicates the “unwinding” of inflationary processes in the country and deepens the crisis of public finances. All this affects the activities of enterprises. For many of them today, attracted (borrowed) funds are not available, so they have to make do with their own resources. Financial resources are moving from the sphere of production to the sphere of intermediary operations.
At the enterprise level, it is necessary to skillfully manage the movement of financial resources and financial relations that arise between business entities. It is necessary to develop financial management goals and influence them using the levers of the financial mechanism. In its most general form, the solution should ensure the most efficient flow of financial resources between the enterprise and the financial market, which is the main source of external financing for the enterprise in market conditions. This can be expressed schematically in Fig. 1.
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Rice. 1 Movement of financial resources between an enterprise and the financial market
Where: 1 - funds received in financial markets (through the sale of shares, bonds, conclusion of loan agreements);
2 - invested funds;
3 - funds received as a result of the financial and economic activities of the enterprise;
4 - funds returned to financial market entities as payment for capital (in the form of interest and dividends);
5 - funds reinvested in the enterprise;
6 - tax payments.
The above diagram reflects two important points:
Greater dependence of an enterprise's financial decisions on the external environment - primarily financial markets and government regulation (which is also aimed at financial markets);
The value of the cash indicator, which is one of the central ones in financial management.
Thus, the financial market allows an enterprise to properly organize the management of financial flows in order to make the most efficient use of capital and obtain maximum profit.
The increase in the scale of accumulation of monetary capital in modern conditions has led to the development of the loan capital market.
Loan capital is money lent for a certain percentage subject to repayment. The form of movement of loan capital is credit.
The main sources of loan capital are monetary capital (money) released in the process of reproduction: the depreciation fund of enterprises, profits, cash income and savings of all segments of the population, monetary savings of the state and others.
The loan capital market promotes the growth of production and trade turnover, the movement of capital within the country, and the transformation of cash savings into capital investments. The economic role of the loan capital market lies in its ability to unite small, scattered funds.
An enterprise needs financial resources to expand production and make a profit; the state needs them to fulfill its economic functions. However, as practice shows, this need is growing faster than the financial capabilities of enterprises and the state - profits, on the one hand, and revenues for the state (mainly taxes), on the other, turn out to be insufficient to cover all the necessary expenses. This is how financial deficits of enterprises are formed.
This problem can be solved by the population, which gradually spends its current income, constantly having a current balance of temporarily free funds. It is these funds that are in growing demand from the state and enterprises as a source of financing their activities.
The supply and demand for free monetary resources of the population gives rise to a special financial market in which the movement of monetary resources occurs from their owners to those who will use them. Such relationships are carried out on the securities market.
The securities market is a part of the financial market in which the purchase and sale of securities takes place. The purpose of the securities market is to ensure a more complete and rapid flow of cash flows into investments at a price that suits the buyer and seller.
Thus, both the state and enterprises can “buy” the population’s funds on the financial market by issuing securities.
In order to attract the maximum number of people to purchase securities, it is necessary to create a risk reduction system and well develop a program of strategic actions to achieve the set goals.
Cash flow is an integral part of the financial market. Any company can invest available funds in securities by purchasing them on the securities market, which is part of the financial market. Thus, there will be an outflow of funds, while receiving income from securities, the enterprise receives funds - an influx. Cash flow is obvious (in the sense of its definition given above).
As for another element of the financial market - the loan capital market, there is also a cash flow here. Any enterprise, in order to replenish its working capital, can take out a loan from a financial institution (cash inflow), repaying the loan, funds leave the enterprise and thereby there is an outflow.
Any movement of funds in one way or another concerns the financial market.
1.3 Principles of cash flow management
The existence of a company in the market is unrealistic without cash flow management. Therefore, it is important to perfectly master the techniques of managing cash flow and financial resources of the company.
For effective management of financial flows, determining the optimal amount of working capital plays an important role, since cash is included in its composition. On the one hand, a lack of cash can lead a company to bankruptcy, and the faster the pace of its development, the greater the risk of being left without money. On the other hand, excessive accumulation of funds is not an indicator of well-being, since the company loses the profit that it could have received as a result of investing this money. This leads to the “death” of capital and reduces the efficiency of its use.
One of the methods of monitoring the cash position is to manage the ratio of the balance sheet value of cash to the amount of working capital. The ratio (percentage) of cash from working capital is determined by dividing the amount of cash by the amount of working capital.
When considering the ratio of cash in working capital, you need to know that a change in the proportion does not necessarily characterize a change in cash, since inventory, which is part of the working capital, may change.
Another approach to determining the amount of cash required for an enterprise is possible. This is an assessment of the cash balance compared to sales volume.
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Cash balance sheet cash value
A high value of the indicator indicates the efficient use of cash and allows you to increase sales without changing working capital, reducing distribution costs, increasing profits.
There are several options for speeding up the receipt of cash: speeding up the process of invoicing customers and clients; personal activities of the manager in receiving payments; concentration of banking operations (funds are accumulated in local banks and transferred to a special account where they are accumulated); receiving cash from accounts in which they lie unused.
If an enterprise is experiencing a shortage of cash, and payments must be made, and a certain availability of money is necessary for current needs, then payments can be deferred, or bills of exchange can be used. You can defer cash payments by using checks to pay suppliers.
From the perspective of investment theory, cash represents one of the special cases of investing in inventory. Therefore, general requirements apply to them:
A basic reserve of cash is required to carry out current payments;
Certain funds are required to cover unforeseen expenses;
It is advisable to have a certain amount of free cash flow to ensure possible or projected expansion of activities.
Thus, models developed in the theory of inventory management can be applied to cash and allow optimizing the amount of cash.
In Western practice, the Baumol and Miller-Orr models are most widely used. The direct application of these models in domestic practice is still difficult due to inflation, high discount rates, underdevelopment of the securities market, etc.
Baumol's model assumes that a company starts operating with its maximum level of cash and then gradually uses it up. All incoming funds from the sale of goods and services are invested in short-term securities. As soon as the cash reserve is depleted, that is, it becomes equal to zero or reaches a certain specified level of safety, the company sells part of the securities and thereby replenishes the cash reserve to its original value. Thus, the dynamics of the balance of funds on the current account is a “sawtooth” graph (Fig. 2).
Balance
on the calculated Q
Rice. 2 Chart of changes in the balance of funds on the current account (Baumol model)
The replenishment amount Q is calculated by the formula:
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Where: V is the projected need for funds in the period;
C - expenses for converting cash into securities;
R is an acceptable and possible interest income for an enterprise on short-term financial investments.
Thus, the average cash reserve is Q/2, and the total number of transactions for converting securities into cash (K) is equal to: K = V : Q (3)
The total costs (OR) of implementing such a cash management policy are: OP = C * K + R * Q /2 (4)
The first term in this formula represents direct expenses, the second is the lost profit from keeping funds in a current account instead of investing them in securities.
Baumol's model is simple and quite acceptable for enterprises whose cash expenses are stable and predictable. In reality, this rarely happens. The balance of funds in the current account changes randomly, and significant fluctuations are possible.
The Miller-Orr model answers the question: how should an enterprise manage its cash reserves if it is impossible to predict the daily outflow and inflow of cash? When constructing the model, the Bernoulli process is used - a stochastic process in which the receipt and expenditure of money from period to period are independent random events (Fig. 3)
Inventory Investment of excess cash
cash upper limit
funds
Return point
lower limit
Restoring the cash supply
Rice. 3 Miller-Orr model
The account balance changes chaotically until it reaches the upper limit. As soon as this happens, the company begins to buy securities in order to return the cash reserve to some normal level (the point of return). If the cash reserve reaches the lower limit, then the company sells its securities and replenishes the cash reserve to the normal level.
When deciding on the range of variation (the difference between the upper and lower limits), it is recommended to adhere to the following policy: if the daily variability of cash flows is large, or the costs associated with buying and selling securities are high, then the enterprise should increase the range of variation, and vice versa. It is also recommended to reduce the range of variation if there is an opportunity to generate income due to the high interest rate on securities.
The model is implemented in several stages:
1. the minimum amount of funds in the current account is established;
2. based on statistical data, the variation in the daily receipt of funds to the current account is determined;
3. the costs of storing funds in a current account and the costs of transforming funds into securities are determined;
4. calculate the range of variation in the cash balance on the current account;
5. calculate the upper limit of funds in the current account, if exceeded, it is necessary to convert part of the funds into short-term securities;
6. determine the return point - the amount of the balance of funds on the current account, to which it is necessary to return if the actual balance of funds on the current account goes beyond the boundaries of the interval [upper limit; bottom line].
Using the Miller-Orr model, you can determine the policy for managing funds in a current account.
Thus, the principles and methods of cash flow management must be adapted and implemented in Russian conditions; in Western practice, the Baumol and Miller-Orr models, developed in the early 60s, are widespread, which can be applied to Russian enterprises with great reservations; Taking into account the experience of Western scientists, it is necessary to develop comprehensive methods for managing cash flows.
To ensure financial independence, an enterprise must have a sufficient amount of equity capital. To do this, it is necessary for the enterprise to operate profitably. To ensure this goal, effective management of the inflow and outflow of funds and prompt response to deviations from a given course of activity are important.
Cash flow management is one of the most important activities of a financial manager and includes:
calculation of the time of circulation of funds (financial cycle);
cash flow analysis;
cash flow forecasting.
The key to managing business liquidity is the cash flow cycle (financial cycle).
The financial cycle represents the time during which funds are withdrawn from circulation.
In other words, the financial cycle includes:
1. investing money in raw materials, materials, semi-finished products and components and other assets for production;
2. sales of products, provision of services and performance of work;
3. receiving revenue from the sale of products, provision of services, performance of work.
Because of the order in which these activities occur, a company's liquidity is directly affected by timing differences in cash transactions for each activity.
The expenditure of money, the sale of products and the receipt of money do not coincide in time, as a result there is a need for either a larger volume of cash flow or the use of other sources of funds (capital and loans) to maintain liquidity.
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Rice. 4 Stages of cash circulation
The figure shows that due to a possible mismatch throughout the entire technological chain of the physical movement of production resources and funds, it is necessary to monitor the ratios of the components of the operating and financial cycles and the entire business activity cycle of the enterprise. It should be remembered that the given flow periodization scheme is only a simplified chronological chain, which, in principle, cannot be observed directly, but can only be determined by calculation.
The logic of the presented scheme is as follows. The operating cycle characterizes the total time during which financial resources are stored in inventories and accounts receivable. Since the company pays bills with a time lag, the time during which funds are diverted from circulation, that is, the financial cycle, is less than the average time of circulation of accounts payable. The reduction in operating and financial cycles over time is considered a positive trend. If a reduction in the operating cycle can be done by accelerating the production process and accounts receivable turnover, then the financial cycle can be shortened both due to these factors and due to a slight slowdown in accounts payable turnover.
The duration of the financial cycle (FCC) in days of turnover is calculated using the formula:
PFC = POC – VOK = WHO + WOD – VOK, (5)
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Based on formula (5), in the future it is possible to evaluate the nature of the enterprise’s credit policy, the equivalence of receivables and payables, the duration of the operating cycle specific to a particular enterprise and its impact on the amount of working capital of the enterprise as a whole, the period of diversion of funds from the economic turnover.
Thus, the central point in calculating the time of circulation of funds is the duration of the financial cycle (FC).
Financial cycle - the time interval from the moment of acquisition of production resources until the receipt of funds for the sold goods.
The calculation of the PFC allows you to indicate ways to accelerate cash turnover by assessing the impact of the indicators used in determining the PFC.
One of the main conditions for the normal operation of an enterprise is the availability of funds, which can be assessed by cash flow analysis.
The main task of cash flow analysis is to identify the reasons for the lack (excess) of funds, determine the sources of their income and areas of use.
The purpose of the analysis is to highlight, if possible, all transactions affecting cash flow.
When analyzing, cash flows are considered for three types of activities: core, investment and financial. This division allows us to determine what the share of income received from each type of activity is. Such an analysis helps to assess the prospects of the enterprise.
The main activity is the activity of the enterprise that brings it the main income, as well as other activities not related to investments and finance. Below are the main directions of cash inflow and outflow (Table 1).
Table 1 Main directions of inflow and outflow of funds by main
activities
Since the main activity is the main source of profit, it should be the main source of cash.
Investment activity is associated with the sale and acquisition of long-term use property.
Information on cash flows associated with investment activities reflects the costs of acquiring resources that will create a future cash flow and profit (see Table 2).
Table 2 Main directions of cash inflow and outflow by
investment activities
Investing activities generally result in temporary cash outflows.
Financing activities are activities that result in changes in the size and composition of an enterprise's equity and borrowings.
An enterprise is considered to be engaged in financial activities if it receives resources from shareholders (issuing shares), returns resources to shareholders (paying dividends), borrows money from creditors, and repays amounts received as loans. Information about cash flows associated with financing activities allows us to predict the future amount of cash to which the enterprise's capital providers will be entitled. The directions of outflow and inflow of funds from financial activities are presented in Table 3.
Table 3 Main directions of inflow and outflow of funds according to financial
activities
Financial activities are designed to increase the funds at the disposal of the enterprise for financial support of core and investment activities.
For each area of activity it is necessary to sum up the results. It is bad when current activities will be dominated by cash outflow. This indicates that the funds received are not enough to ensure the current payments of the enterprise. In this case, the lack of funds for current payments will be covered by borrowed resources. If, in addition, there is an outflow of funds from investment activities, then the financial independence of the enterprise decreases.
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Short-term liabilities
This ratio shows how much of the current debt can be repaid as of the balance sheet date. If the actual value of the coefficient is less than 0.2-0.3, then this indicates a shortage of funds in the enterprise. Under these conditions, current solvency will depend entirely on the reliability of debtors.
If during the analysis it turns out that the amount of cash in current liabilities decreases, and current liabilities increase, then this is a negative trend.
At the second stage, the sufficiency of funds is assessed. To do this, determine the duration of their turnover period using the formula:
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one revolution Cash turnover for the period
Money
Average cash balances are calculated using the chronological average. For the calculation, data is taken on the amount of balances at the beginning and end of the period in cash accounts. To calculate the average turnover, you should use the credit turnover of account 51 for the analyzed period. For account 51, it is necessary to clear the credit turnover from internal turnover.
The main document for analyzing cash flows is the “Cash Flow Statement”.
Direct and indirect methods are used to determine cash flows. The difference between them lies in the different sequence of procedures for determining the amount of cash flow.
The direct method is based on calculating the inflow (revenue from the sale of products, works and services, advances received, etc.) and outflow (payment of supplier bills, return of short-term loans received, etc.) of funds, that is, the initial element is revenue. Cash analysis by the direct method makes it possible to assess the liquidity of an enterprise, since it reveals in detail the movement of funds in its accounts and allows one to draw prompt conclusions regarding the sufficiency of funds for payments on current obligations, for investment activities and additional costs.
This method has a serious drawback - it does not reveal the relationship between the obtained financial result and the change in funds in the accounts of the enterprise, therefore an indirect method of analysis is used to explain the reason for the discrepancy between profit and cash.
The indirect method is based on the analysis of balance sheet and income statement items, accounting for transactions related to cash flows, and sequential adjustment of net profit, that is, the initial element is profit.
The indirect method allows you to show the relationship between different types of activities of the enterprise, establishes the relationship between net profit and changes in the assets of the enterprise for the reporting period. Its essence is to convert the amount of net profit into the amount of cash. In this case, it is assumed that there are certain types of expenses and income that reduce (increase) profit without affecting the amount of cash. In the process of analysis, net profit is adjusted to the amount of these expenses (income) so that expense items not associated with the outflow of funds and income items not accompanied by their inflow do not affect the amount of net profit.
Business transactions related to the calculation of depreciation of fixed assets and intangible assets, which reduce the value of the financial result, do not cause an outflow of funds. In this case, the decrease in profit is not accompanied by a decrease in cash (to obtain the real amount of cash, the amount of accrued depreciation must be added to net profit). When analyzing the relationship between the obtained financial result and changes in funds, one should take into account the possibility of receiving income reflected in the accounting before the actual receipt of funds (for example, when accounting for sold products at the time of their shipment).
For analysis purposes, information from the balance sheet, form No. 2 “Profit and Loss Statement”, as well as general ledger data are used. With its help, cash flows within the framework of current, investment and financing activities are separately determined. The total result, characterizing the state of funds at the enterprise, consists of the sum of the results of the flow of funds for each type of activity.
The analysis begins with an assessment of changes in individual items of the enterprise's assets and their sources.
Then adjustments are made to the data of various accounts that affect the profit margin. This influence can be multidirectional. The adjustment is based on a balance sheet equation linking the opening and closing balances, as well as debit and credit turnover.
Analysis of cash flows makes it possible to draw more informed conclusions about:
1. To what extent and from what sources the funds received were received, what are the directions for their use.
2. Are the enterprise’s own funds sufficient for investment activities?
3. Is the company able to pay its current obligations.
4. Is the profit received sufficient to service current activities?
5. What explains the discrepancies between the amount of profit received and the availability of funds?
All this determines the importance of such an analysis and the feasibility of its implementation for the purposes of operational and strategic financial planning of the enterprise.
Forecasting in financial management is the anticipation of a certain event, the development of future changes in the financial condition of the object as a whole and its various parts.
A feature of forecasting is the alternativeness in the construction of financial indicators and parameters, which determines the variation in the development of the financial condition of the enterprise based on emerging trends. Working on the forecast contributes to a deeper study of all aspects of production, which makes it possible to more successfully resolve emerging issues.
Forecasting can be carried out both on the basis of extrapolation of the past to the future, taking into account an expert assessment of the trend of change, and direct anticipation of changes.
A cash flow forecast is a report that reflects all receipts and expenditures of funds in the process of expected transactions (operations) for a certain period.
Cash flow forecasting allows you to foresee a shortage or surplus of funds even before they arise and makes it possible to adjust the behavior of the company over a certain period of time.
In the economic literature you can find the statement that the “forecast” of cash flow is more correctly called a “budget”. However, according to a number of economists, such a statement is erroneous. They believe that the forecast and the budget are different, not similar concepts.
During the year, unforeseen circumstances may arise that require an immediate change in planned indicators to meet current circumstances. The new figures obtained cannot be called a “budget”. It is more correct to call them “forecasts”, of which there can be as many as required depending on the circumstances.
Thus, for economists who adhere to this point of view, a cash flow forecast is a report that reflects all receipts and expenditures of funds in the process of expected transactions (operations) for a certain period, and the budget - the estimated results of a coordinated management plan or business strategy for a future period.
According to a number of other economists, since most indicators are quite difficult to predict with great accuracy, cash flow forecasting often comes down to constructing cash budgets.
Cash budget is a forecast of cash flows caused by collections and disbursements.
It is developed on the basis of planning future cash receipts and payments of the enterprise for various periods of time and shows the moment and volume of expected receipts and payments of cash for the reporting period.
The budget represents a program of actions expressed in monetary terms in the field of production, procurement of raw materials or goods, sales of manufactured products, etc. The action program must ensure time and functional coordination (coordination) of individual activities.
A cash budget can be drawn up for almost any period. Short-term forecasts are typically made monthly, probably because they take into account seasonal variations in cash flows. When cash flows are predictable but highly variable, it may be necessary to develop a budget over shorter periods to determine maximum cash requirements. For the same reason, when cash flows are relatively weak, budgeting for a quarter or even a longer period of time may be justified.
The more distant the period for which the forecast is made, the less accurate the prediction becomes. The expense of preparing a monthly cash budget is usually justified only for forecasts related to the near future. A budget is only as useful as we rely on the accuracy of the forecast to create it.
A cash budget usually consists of four main sections:
The receipts section, which includes the cash balance at the beginning of the period, cash receipts from customers and other cash receipts;
Section of cash expenditures, reflecting all types of cash outflows for the coming period;
Division of cash surplus or deficit - the difference between the receipt and expenditure of funds;
Financial section, which presents in detail the items of borrowed funds and debt repayment for the upcoming period.
The budget allows:
Get an idea of the total cash requirements;
Make decisions about the rational use of resources;
Analyze significant deviations in budget items and assess their impact on the financial performance of the enterprise;
Determine the need for the volume and timing of borrowing;
Monitor changes in cash flow, which should always be at a level sufficient to pay off obligations as needed.
As a result, it is possible to control the inflow and outflow of funds, paying special attention to the correctness of the reflection of the exact time of their occurrence and their relationship with the planned production, investment and financial activities.
Having examined various approaches to cash flow forecasting, the author proceeds from the point of view that forecasting comes down to building a cash budget. Forecasting will help to identify trends in the development of the entire enterprise as a whole, as well as individual indicators of its functioning. With the help of forecast data, an enterprise will be able to react in advance to upcoming changes in its condition, and not react quickly when, in the event of unfavorable development trends, it is no longer necessary to avoid losses (losses), but to try to reduce them.
Since Kurskkhimvolokno OJSC does not forecast cash flow, but only works with reporting, we will develop a budget based on actual data, which will already allow us to draw up a forecast. The forecast in our case is based on identifying future values of indicators (based on form No. 4). Having the actual values of the indicators, in the Excel 97 spreadsheet processor we will predict the values of the indicators for the lead period (see Appendix 2).
From the point of view of statistical methods for processing such information, the forecast method is called the “trend method”. The linear trend equation has the form:
Y t = a o + a 1 * t (11)
where a o and a 1 are the parameters of the equation; t - time designation.
To calculate the function parameters based on the requirements of the least squares method, a system of normal equations is compiled:
n* a o + a 1* S t = S Y a o * S t + a 1 * S t 2 = S t* Y
To solve a system of equations, the method of determinants is usually used, which allows one to obtain more accurate results by minimizing errors due to rounding in parameter calculations:
In relation to the analyzed data, a matrix of calculated indicators is compiled to determine a o and a 1 (see Table 4). Let's look at the example of the line "Receipts for the period."
Table 4 Calculation of values of the aligned series using the least squares method
a o =SY/n = 13191256.75 a 1 = S(t * Y)/St 2 = 1180893.85
Thus, forecasting helps to see what will happen in the future with cash flow; whether it is necessary to withdraw funds in the first months or whether they need to be accumulated, which must be done in the second quarter. It is also important whether the enterprise can use bank loans and loans from other enterprises. The cash budget will help us assess whether the repayment period for loans and borrowings is realistic.
In the context of the transition to market relations, control over cash flow becomes crucial, since the survival of the enterprise depends on it, therefore it is necessary to forecast cash flow, draw up and develop cash budgets. All this will allow you to monitor the amount of cash flow, identify shortages or surpluses of funds even before they arise, and make it possible to adjust the actions taken.
OJSC "Kurskkhimvolokno"
The enterprise under study - Open Joint Stock Company "Kurskkhimvolokno" was created by transforming the Kursk state enterprise "Khimvolokno". Location of the Company: Kursk, Seimsky administrative district.
OJSC "Kurskkhimvolokno" is a commercial organization, a legal entity, maintains independent accounting, is on its own balance sheet and has its own current account. An enterprise can, on its own behalf, acquire and exercise property and personal non-property rights, bear responsibilities, be a plaintiff and defendant in court, and open bank accounts in rubles and foreign currency. The profit remaining with the enterprise after paying taxes and other payments to the budget comes at its full disposal and is used by the joint-stock company independently.
The founder of the Company is the Property Management Committee of the Kursk Region.
In accordance with the restructuring program of OJSC Kurskkhimvolokno, in 1998 the company acted as the founder of a subsidiary, CJSC Kapron.
The main purpose of creating a company is: making a profit through the production and sale of chemical fibers, wholesale and retail trade, leasing of real estate and property.
The authorized capital of CJSC Kapron is 180.5 million rubles. The number of outstanding shares is 180,515, with a par value of one share of 1,000 rubles.
The authorized capital of OJSC "Kurskkhimvolokno" is 49.4 million rubles, formed at the expense of the cost of 493,559 ordinary registered shares (with a par value of 100 rubles).
The company does not have any outstanding shares that have not been fully paid. The authorized capital has been paid in full.
The company's shareholders are: the Kursk Region Property Committee, which owns 9.5% of shares, the workforce (3% of shares) and 77.5% of all shares of Kurskkhimvolokno OJSC belongs to third-party legal entities.
The main activities of OJSC "Kurskkhimvolokno" are:
Production and sale of industrial and technical products, consumer goods, agricultural products;
Trade and procurement activities;
Foreign economic activity.
OJSC "Kurskkhimvolokno" is one of Russia's largest producers of synthetic fibers and threads for the textile, knitting, carpet, printing, tire, rubber, fishing industries, etc.
The company produces polyamide textile and technical threads, fibers and cord fabric, and is the only one in Russia today that produces polyester and polypropylene fibers and threads, monofilaments, various resins and hot melt adhesives.
In addition, the company produces a wide range of consumer goods, including: insulated linoleum, needle-punched carpeting, hand knitting threads, hosiery, fishing line, cables, cords, bristles and plastic products, cooling liquid." Antifreeze - A 40m", various non-woven materials.
The enterprise has two main production facilities, “Lavsan” and “Kapron”, and seventeen auxiliary workshops; produces three types of synthetic fibers and threads: polyester (lavsan), polycaproamide (nylon) and polyolefin (polypropylene), as well as various types of synthetic resins (polyester and polyamide).
Manufactured products are sent to light industry enterprises in Russia, Belarus, Ukraine and other regions (Table 1).
Table 1 - Geography of the product sales market
There are a number of enterprises producing chemical fibers and threads in Russia. Industry enterprises are concentrated in five economic regions, with 60% of the capacities located in the European part of Russia, and the remaining 40% located in Siberia. In terms of production capacity, the undoubted leader is Balakovo Chemical Fibers, more than half of whose capacity is for viscose fiber. Sibvolokno takes second place. In third place is JSC Kurskkhimvolokno, which has recently specialized in the production of nylon threads and fibers.
Over the past three years, only in 1998, the industry saw an increase in production of synthetic threads, nylon cord fabric, nylon fiber, etc.
This is due to the fact that in the third quarter of 1998, due to the rise in the dollar exchange rate, supplies of these types of fibers and threads from Ukraine and Belarus decreased.
In the industry as a whole, the structure of production of chemical fibers and threads changes periodically. Despite the fact that the share of textile cord and technical film threads in the total production of chemical fibers and threads has increased, their production in physical terms has decreased.
For synthetic fibers and threads in the industry as a whole, there is a decline in production.
Recently, all production capacities of the enterprise have been used at less than 100%. Production volumes in value terms are clearly presented in Figure 1.
Figure 1 Production volumes
The underutilization of average annual production capacity is explained by financial difficulties in purchasing raw materials, energy resources, and selling products on the domestic market due to the low solvency of consumer enterprises.
Despite the difficult situation in the economy, JSC Kurskkhimvolokno worked more stably in 1998 than in previous years. In 1996, losses were incurred for the first time in core activities. An analysis of the enterprise's performance for 1997 shows a deterioration in its performance.
For the period 1996-1998. the enterprise received losses that resulted from losses from sales, excess operating expenses over income, diversion of funds for the maintenance of the socio-cultural and housing and communal services, economic sanctions, etc. In addition, there are losses from previous years. In total, losses for 1998, together with losses from previous years, amounted to 320,449 thousand rubles.
Table 2 - Main indicators of production and financial activities of OJSC "Kurskkhimvolokno"
| Name |
Growth rate 1998 as a percentage of 1996 |
|||
| Commercial products of own production, million rubles |
||||
| Revenues from sales, upon payment on shipment |
||||
| Cost of sales, thousand rubles |
||||
| Profit (+), losses (-), thousand rubles Incl. from implementation; Diversion of funds for the maintenance of housing, social and cultural spheres, etc.; Economic sanctions |
||||
| Cost of fixed production assets, thousand rubles |
||||
| Construction in progress |
||||
| The amount of inventories and work in progress incl. cost of finished products |
||||
| Investments in fixed capital |
||||
| Average number of employees incl. PPP |
The company's operation with losses led to a critical financial condition.
We present the dynamics of the enterprise’s funds in Table 3.
Table 3 - Dynamics of enterprise funds
In thousands of rubles
The dynamics show a decrease in working capital and an increase in accounts payable. The significant increase in debt is due to obligations under the long-term lease agreement for fixed assets of JSC Kapron.
Thus, the enterprise does not have enough own funds to fully form even non-current assets, not to mention current assets, which are fully formed through borrowed funds, and practically due to only accounts payable.
The dynamics of the formation of working capital and accounts payable have a negative trend. The growth of accounts payable (mainly to suppliers, to the budget and extra-budgetary funds) is explained by the unprofitable operation of the enterprise and the lack of funds for timely payment of supplies of raw materials and resources, and payment of taxes.
3.2 Assessment of the state of cash flows of OJSC "Kurskkhimvolokno"
In this chapter, the author will try to give a comprehensive assessment of the state of cash flows at the research site and develop recommendations for improving cash flow management. To do this, the main indicators of cash flow are considered.
First, it is necessary to assess the general state of funds and analyze the main ways of their receipt and expenditure in the organization under study.
In order to reveal the real cash flow at OJSC Kurskkhimvolokno, assess the synchronicity of receipts and payments, and also link the value of the obtained financial result with the state of funds, we will highlight and analyze all directions of cash receipts, as well as their expenditure.
The total cash flow is presented in Appendix 3. Let us present on the graph the change in cash for the most important items for analysis for the period 1995-1998. (Fig. 5).
The data in Appendix 3 gives a general idea of cash flows by year by quarter. We can say that the cash balances at the end of the quarter are unstable and change throughout the period under review. This may be due to the fact that enterprises must agree with the bank where their current account is located, the size of the cash limit, that is
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the maximum possible amount of money in the cash register. In addition, keeping cash in the cash register is very dangerous, and since the Central Market is a trading enterprise, it hands over (collects) the proceeds to the bank.
As for the funds in the current account, for a detailed analysis of their expenditure it is necessary to review bank statements for the relevant periods. Regarding the dynamics of balances on the current account, we can say that it fully corresponds to the profile of the enterprise. Cash in other (special) bank accounts is characterized by a downward trend.
Much attention should be paid to the dynamics of changes in accounts payable and receivable. Trends in changes in accounts payable and receivable in 1995-1998. at the municipal unitary enterprise "Central Market" are shown on the graph (Fig. 6).
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It is desirable that accounts payable be slightly higher than accounts receivable. This is due to the fact that accounts receivable are money temporarily diverted from circulation, and accounts payable are funds involved in circulation. It is also undesirable to have a strong excess of accounts payable over accounts receivable, because in the event of a demand from creditors (especially for short-term debt) to repay the debt, the enterprise may be made dependent on the financial condition of the debtors.
As can be seen from Fig. 6, accounts payable exceed accounts receivable. In general, this is not bad, however, in the third quarter of 1995, 1st quarter of 1996, 4th quarter of 1997. accounts payable exceeded accounts receivable by approximately 2 times. This is a negative trend. As of the 1st quarter of 1998 this ratio was 1.56 times. At the same time, the company had only about 9% of the amount of accounts payable. This suggests that only 55% of the accounts payable could be repaid from cash and receivables, with only 9% from cash. This state of affairs allows us to draw the following conclusions:
The ratio of accounts payable and receivable does not fully satisfy the requirements of financial independence of the enterprise;
Fluctuations in the amount of funds in the cash register and in the current account indicate instability in receiving and especially spending funds.;
The state of affairs can be changed by analyzing all (or the main) channels of receipt and directions of use of funds, taking as a basis Form No. 4 “Cash Flow Statement” of annual and quarterly reporting.
A cash flow statement is one of the main forms of financial reporting, which summarizes information about the inflow and outflow of cash from an enterprise. The report explains the changes that have occurred with one of the components of the financial statements - cash - from one balance sheet date to another, that is, it allows users to analyze current cash flows, estimate their future receipts, assess the ability of the enterprise to repay its debts and pay dividends, analyze the need to attract additional financial resources. Its great advantage is that it allows you to identify in a simple and analytical form the factors that influenced changes in cash flows during the reporting period. Let's analyze the main sources of cash inflow and outflow (see Table 5).
Table 5 Analysis of sources of cash inflow and outflow
In thousands of rubles
| Indicators |
|||
| Cash balance at the beginning of the year |
|||
| Total funds received, including: |
|||
| revenue from product sales |
|||
| proceeds from the sale of fixed assets |
|||
| budget allocations |
|||
| interest on financial investments |
|||
| other supply |
|||
| Total funds sent, including |
|||
| to pay for goods |
|||
| for wages |
|||
| for the issuance of accountable amounts |
|||
| to pay for cars and vehicles |
|||
| for financial investments |
|||
| for settlements with the budget |
|||
| handed over to the bank from the cash register |
|||
| other payments |
|||
| Cash balance at the end of the period |
Thus, based on the analysis data, the following conclusions can be drawn:
1. During the period of existence of the Municipal Unitary Enterprise "Central Market" (since April 1995), in general, for each year, the inflow of funds prevailed over the outflow.
2. The share of revenues from sales of products and provision of services was 60.0%, 53.9% and 57.4%, respectively, for 1995-1997. To maintain this trend, one must strive to quickly convert accounts receivable (which over the years is equal to 10.8%, 9.6%, 9.1%, respectively, as a percentage of sales revenue) into cash. It can be seen that the share of accounts receivable in revenue is decreasing, although for many organizations and enterprises the trend is the opposite.
3. Funds are used mainly to pay for goods. The share of such expenses by year is 49.1%, 37.3%, 37.9%. If we add labor costs to these expenses (the result is 51.9%, 41.9%, 43.1%), then the proceeds from the sale of products will be enough to produce them. This indicates the normal functioning of the organization.
4. A negative point is the lack of financial investments of the enterprise. These investments (in securities, time deposits) could generate income. However, despite the overall predominance of cash inflows over outflows over the period, in some periods the enterprise did not have enough funds to pay off creditors. This is evidenced by the data on the absolute liquidity ratio, which the author will analyze further.
An important point in cash flow analysis is the determination of the duration of the financial cycle (FCC) (cash circulation time). The reduction of PFC is considered as a positive trend, that is, the smaller the PFC, the less money is “frozen” in various assets, which helps to accelerate their turnover and thereby the possibility of generating additional income. Based on the formula for calculating the PFC (see (6)), we will determine the PFC for a number of periods at the municipal unitary enterprise "Central Market" (see Appendix D).
The data obtained give an idea of the PFC, which increases in the first quarter of each year under review. Increase in PFC in the 1st quarter of 1995-1997. was due to an increase in the circulation time of receivables by 8.11, 14 and 3.42 days, respectively. This suggests that there was a slowdown in the turnover of receivables compared to other periods, which caused, in turn, an increase in the share of overdue and doubtful receivables and a deterioration in their quality. Subsequently, the PFC decreased, and as the data show, it ranged from 0.88 to 2.7 days, that is, it has approximately the same time interval. This is influenced by a reduction in inventory circulation time. The shorter the inventory circulation time, the shorter their shelf life, that is, they do not accumulate and overstocking does not occur. This suggests that in the Central Market, due to this state of inventory, there is no outflow of funds, which means funds are not diverted from circulation and can be used for other purposes.
The reduction in the PFC was also due to a slowdown in the circulation time of accounts payable, that is, due to temporarily raised funds, which are a completely acceptable source of financing in contrast to expensive bank loans. In the 1st quarter of 1998 There is also a tendency towards a reduction in the PFC, which suggests that Central Market employees monitor the financial management system and, by accelerating turnover, extract additional profit. Therefore, in the future, it is necessary to adhere to this position and closely monitor the components of the PFC, which will make it possible to take the necessary measures to eliminate the causes that caused the failures, and, if necessary, will allow the Central Market to formulate a credit policy.
One of the conditions for the financial well-being of an organization is the influx of cash. The organization must have a sufficient amount of cash in order to pay its creditors on time, pay wages, and, ultimately, to maintain a certain optimal level of liquidity. However, an excessive amount of cash indicates that the organization is actually suffering losses associated with inflation and depreciation of money, as well as the missed opportunity for their profitable placement. Therefore, to assess the state of cash flows of the Central Market Municipal Unitary Enterprise, the share of cash in current liabilities was analyzed, that is, the absolute liquidity ratio was calculated (see Appendix E).
The normal value of the absolute liquidity ratio ranges from 0.2-0.3. This value of the absolute liquidity ratio means that 20-30% of short-term liabilities can be repaid by the enterprise immediately from cash and marketable securities. Table D.1 shows that the values of the absolute liquidity ratio ranged from 3-57%. This indicates an unstable financial position of the enterprise.
On the one hand, the values of the absolute liquidity ratio for 5 periods did not reach the normal value, which means that the company did not have enough cash to pay off short-term obligations and had to rely on the financial position of debtors and on its assets, which could be used to pay off debts if money was not received from debtors.
On the other hand, for 4 periods the values of the absolute liquidity ratio were higher than the normative ones. This indicates that the company has too much cash, although these funds could be put into circulation and generate some income. Only in three periods did the absolute liquidity ratio correspond to the normal value.
Thus, the company needs to control cash flow, especially in the form of accounts payable. In fact, at the end of 1997. and early 1998 the value of the absolute liquidity ratio was within 3-8%. This means that the risk of non-payment of debts increases and the liquidity of the enterprise may be reduced.
We will assess the sufficiency of funds at the Central Market Municipal Unitary Enterprise. To do this, we calculate the duration of their turnover period. For this purpose, formula (11) is used. The duration of the period is 30 days, since the value of the indicator is calculated for a month. For the calculation, internal accounting data on the amount of balances at the beginning and end of the period in cash accounts were used. To calculate the average turnover, the credit turnover of account 51 was used.
At the Central Market Municipal Unitary Enterprise, most of the payments go through the cash register, so the indicated cash expenses on the cash register account were added to the amount of credit turnover on the current account. The calculation of the cash turnover period is shown in Appendix E. Let us visually represent the change in the duration of cash turnover on the graph (Fig. 7).
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As follows from the data in Appendix E, the period of cash turnover during 1996. ranges from 1.03 to 4.44 days, and in 1997. from 1.02 to 4.50. In other words, from the moment money was received into the company’s account until the moment it was disposed of, it took place in 1996. on average no more than 1.8 days, in 1997 2.19 days. This indicates insufficient funds for the enterprise, which is very dangerous when there is a significant amount of accounts payable. Any serious delay in payment can take the company out of financial stability.
In order to reveal the real flow of funds at the Central Market municipal unitary enterprise, evaluate their receipt and expenditure, and also link the value of the obtained financial result with the state of funds, all directions of their receipt and disposal were identified and analyzed, the analysis was carried out directly (see . Appendix G) and indirect (see Appendix H) methods. This approach will ensure operational management and control over cash flows in the organization.
Thus, from Appendix G it is clear that the inflow exceeds the outflow of funds in each quarter of 1996 and 1997. The influx of cash was mainly ensured by the growth of revenue from sales of products, goods and services. On average, as a percentage of the total inflow, it was 68 - 69%.
As for investment and financial activities, the organization has neither inflow nor outflow of funds for them. All receipts and expenditures of funds occur only for current activities.
Appendix 3 discusses the indirect method. It allows us to explain the discrepancies between the amount of net profit and changes in cash flows by type of activity. The author considers only current activities, since the investment and financial organization is not involved. The values of net profit and cash are shown in Table 6.
Table 6 Net profit and cash flow from current activities
In thousands of rubles
Although, according to the financial statements (form No. 2), the organization under study received a net profit in the amounts presented in table 6, however, in reality it had quarterly funds in the amounts shown in the same table. It is the indirect method that allows such a comparison to be made.
The table shows that basically the organization actually had more cash than net profit. The reasons for this are as follows:
Significant amounts of depreciation (on average 28% of net income in 1996 and 16.7% in 1997) reduced net income, but did not affect cash flow, since the actual money for these assets was paid earlier when they were purchased, and depreciation amounts were written off to reduce profits;
Since the method of selling products using the shipment method is used to calculate financial results, the amount of receivables is part of the profit, but in reality the money will arrive later, which will lead to an increase in the real cash inflow.
Transactions on passive accounts have the opposite mechanism of impact on cash flow. If the balance of the liability accounts increases, then less was paid on them than shown in the expenses and the amount of the increase must be added to net income. If the balance decreases, then more was paid on the liability accounts and the amount of the decrease should be excluded from net income.
Using the indirect method, the management of an enterprise can monitor its current solvency, make operational decisions on stabilization and assess the possibility of making additional investments.
Thus, in this section, the main indicators of cash flows were analyzed, which in the next section will be summarized in order to give a comprehensive assessment of the state of cash flows and develop the main measures to improve the efficiency of cash flow management.
Having assessed and analyzed the state of cash flows of the Central Market Municipal Unitary Enterprise, it is necessary to develop and justify solutions for their effective use.
During the analysis, it was found that the organization does not have a stable state, that is, at times there is either a shortage of funds or temporarily free funds. Therefore, in order to have at least relative stability, and not sudden changes, we will try to develop a set of measures for the efficient use of funds.
The main cash flow indicators analyzed above are presented in Table 7.
Table 7 Key indicators of cash position
Table continuation
Table 7 shows the calculated data of the main indicators of the cash position, as well as forecast data for two periods, the 1st and 2nd quarters of 1998. The forecast was made in the Excel-97 spreadsheet processor, and the given graphs were constructed in it.
Based on these data, the following conclusions (recommendations) can be drawn:
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3. As can be seen from Table 7 and Fig. 9 the organization had a net profit in each period. Since the beginning of 1997 and, including forecast values, the net profit indicator tends to increase and is quite stable. The amount of funds that the organization had and will have is projected in 1998. higher than the profit indicator due to discrepancies between receiving real money and generating financial results.
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4. From the 4th quarter of 1997 There has been a tendency towards a reduction in the duration of the financial cycle. This is a good trend, since the smaller the PFC, the faster the funds circulate and bring additional profit in the process of selling products and other cash receipts. The indicator of the duration of cash turnover has a similar trend (see Fig. 11).
5. The analysis given above shows that the organization has a predominance of accounts payable over accounts receivable (see Fig. 6). This is not a bad trend, however, an excessive excess of accounts payable with a decrease in cash at the end of the period can negatively affect the solvency of the organization, since short-term accounts mainly predominate in accounts payable.
Thus, for the organization under study, the following measures can be taken to improve cash flow management:
1. Slightly increase the liquidity ratio to a normal value, which will provide the organization with liquidity.
2. Try to reduce the repayment period for receivables, using partial prepayment or other methods of influencing debtors (penalties, fines, penalties, etc.).
3. try to get more profit from core activities. To do this, it is possible to expand the market area, install additional retail spaces (one-time fees amounted to about 52% in 1995-1997), allocate additional spaces for rent (rents averaged about 45% over the same period). These are the two largest sources of income for the organization.
4. Direct free funds to financial activities. The organization practically does not engage in financial activities, which, under certain circumstances (the presence of qualified personnel, etc.) could bring additional profit, which, we note, is not taxed, since such income is taxed at the source of its occurrence.
5. The main sources of spending money are expenses for rent and maintenance of premises, inventory and other assets, wages and depreciation of own fixed assets. Note that depreciation is not accompanied by a real cash outflow. Salaries are practically not subject to reduction. Therefore, you need to try to reduce the cost of maintaining premises and other assets.
Thus, the main indicators of the state of cash flows were analyzed and recommendations were made to improve cash flow management.
Based on the conducted cash flow management study, the following conclusions and recommendations were obtained:
1. Cash flow is one of the central elements of the life of any enterprise. Their management is an integral part of managing all financial resources of an enterprise to ensure the enterprise's goal - making a profit.
2. In market conditions, cash flow management becomes the most pressing problem of managing the entire enterprise, because this is where the main ways to obtain positive financial results are concentrated.
3. In this thesis, the concept of cash flows was examined, their role in the functioning of the enterprise was analyzed, a theoretical description of methods for studying cash flows was given, and forecasting methods were used to describe the future state of the main indicators of the state of cash flows in relation to the object of study.
4. The main conclusions were drawn and recommendations were developed to improve cash flow management at the research site:
Increase the liquidity ratio to a normal value;
Reduce repayment periods for receivables;
Try to get more profit from core activities;
Direct free funds to financial activities;
Try to reduce the cost of maintaining premises and other assets.
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Appendix A
Figure A.1 Diagram of cash flows within the enterprise
Table B.1 Development table for the forecast of cash availability
| Indicators |
1st quarter 1997 |
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| Cash balances at the beginning of the period |
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| Receipts for the period |
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| from the sale of goods, works and services |
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| from the sale of fixed assets and other property |
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| budget allocations |
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| dividends, interest on financial investments |
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| other supply |
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| Total cash at the disposal of the enterprise |
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| Expenses for the period |
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| costs of paying for goods and work |
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| labor costs |
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| social contributions |
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| costs of issuing accountable amounts |
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| equipment purchase |
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| financial investment costs |
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| budget calculations |
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| deposited cash to the bank |
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| other payments |
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| Excess (deficit) of funds |
Table B.1 Total cash flow, (in 1997 prices, at the end of the period) In thousands of rubles
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Rational formation of cash flows contributes to the rhythm of the operating cycle of the enterprise and ensures growth in production volumes and sales of products. At the same time, any violation of payment discipline negatively affects the formation of production reserves of raw materials and supplies, the level of labor productivity, sales of finished products, the position of the enterprise in the market, etc. Even for enterprises that successfully operate in the market and generate a sufficient amount of profit, insolvency can arise as a result of an imbalance of various types of cash flows over time.
On the other hand, cash flow management is an important factor in accelerating the turnover of an enterprise's capital. This occurs due to a reduction in the duration of the operating cycle, a more economical use of own funds and a reduction in the need for borrowed sources of funds. Consequently, the efficiency of the enterprise depends entirely on the organization of the cash flow management system. This system is created to ensure the implementation of short-term and strategic plans of the enterprise, maintaining solvency and financial stability, more rational use of its assets and sources of financing, as well as minimizing the costs of financing business activities.
Managing an enterprise's cash flows is an important part of the overall system for managing its financial activities.
Cash flow management is the tool with which you can achieve the desired result of an enterprise - making a profit.
But the main role in managing cash flows is given to ensuring their balance in terms of types, volumes, time intervals and other significant characteristics. To successfully solve this problem, it is necessary to implement planning, accounting, analysis and control systems at the enterprise. After all, planning the economic activities of an enterprise in general and cash flows in particular significantly increases the efficiency of cash flow management, which leads to:
- - reducing the current needs of the enterprise for them based on increasing the turnover of cash assets and receivables, as well as choosing a rational structure of cash flows;
- - effective use of temporarily available funds (including insurance balances) through financial investments of the enterprise;
- - ensuring a cash surplus and the necessary solvency of the enterprise in the current period by synchronizing positive and negative cash flow in the context of each time interval.
In this course work, the concept of cash flows was examined, their role in the functioning of the enterprise was analyzed, a theoretical description of methods for studying cash flows was given, forecasting methods were used to describe the future state of the main indicators of the state of cash flows in relation to the object of study.
Management of receivables and payables, included in the credit policy of an enterprise, is one of the most important blocks in managing the cash flow of trading enterprises due to their significant share in the balance sheet structure, as well as their impact on gross cash flows. As part of the enterprise's credit policy, tasks are solved that determine its role in managing cash flow in the enterprise: maximizing positive cash flow; reducing the cost of financing investments of working capital in accounts receivable and inventory; synchronization of cash inflows and outflows; ensuring the liquidity and solvency of the enterprise.
- - try to get more profit from core activities;
- - direct free funds to financial activities;
- - try to reduce the cost of maintaining premises and other assets.
Thus, cash flow management is the most important element of the financial policy of an enterprise; it permeates the entire management system of the enterprise. The importance and significance of cash flow management in an enterprise can hardly be overestimated, since not only the sustainability of the enterprise in a specific period of time, but also the ability to further develop and achieve financial success in the long term depends on its quality and efficiency.
In conditions of inflation and the crisis of non-payments, the problem of managing an enterprise's cash flows is the most pressing, therefore it is necessary to create such a management system cash flows, which would cover the main aspects management of enterprise activities (non-circulation management financial assets, inventories, accounts receivable and accounts payable, bank loans, equity). The main components of the system: cash flow accounting; analysis of their flows; drawing up a cash budget.
The cash flow management system should allow you to obtain objective answers to the following questions:
1) in what volume and from what sources the funds were received, what are the main directions of their expenditure;
2) Is the enterprise, as a result of current activities, able to ensure that cash receipts exceed payments? pressure and how stable is this excess;
3) Is the company able to pay its bills? general obligations;
4) is the profit received sufficient to satisfy his current need for money;
5) are there enough own funds to carry out investment activities;
6) what explains the difference between the amount of profit received and the amount of cash.
This system provides analysis of cash flows funds based on Form No. 4 “Statement of Cash Flows” funds." This allows you not only to control the current solvency, but also make operational decisions on cash flow management, identify the reasons for changesbetween financial results and cash.
The main task of cash flow analysis is to identify level of sufficiency of cash generation, effect activity of their use in the process of operation, as well as the same balance between positive and negative moneyof the firm's financial flows in volume and time.
Insufficient funds for organization or races expansion of production can lead to significant losses: profits, competitiveness, reduction or loss of the share of firms we are at the market, etc.
Cash flow analysis is carried out for the enterprise as a whole, as well as in the context of the main types of its economic activities, for individual structural units (“responsibility centers”) at the following stages.
1st stage- analysis of the dynamics of the volume of formation positive financial flow of the company in the context of individual sources.
The growth rates of positive financial flow with the growth rate of the company's assets, production volumes and sales of products. Particular attention is paid to the the ratio of funds raised through internal internal and external sources, identifying the degree of dependence of the company’s development on external sources of financing.
2nd stage- analysis of the dynamics of the volume of formation of a company’s negative financial flow, the structure of this flow in the areas of spending funds.
The following are determined: the proportionality of the development of the company through the expenditure of funds, certain types of its assets, ensuring increasing market value; in what directions funds raised from external sources were used; to what extent was the amount of the principal debt repaid? previously attracted loans and borrowings.
3rd stage- analysis of the balance between positive and negative significant financial flows by total volume and time.
The dynamics of the net cash flow indicator is studied, revealing which is the most important, effective indicator of the financial activity of an enterprise, as well as an indicator of the level of balance of its financial flows as a whole. The importance of net profit in the formation of net cash flow is determined, an assessment of the factors influencing its growth is determined, which had a greater impact on the increase in net profit: an increase in the number of products and a decrease in its cost or an increase in prices for products, increasing profits through non-sales operations, etc. It is necessary to determine the degree of adequacy of depreciationtax deductions from the perspective of the necessary OS updatenew funds and intangible assets.
4th stage- analysis of the dynamics of the liquidity ratio of the enterprise’s cash flow in the context of individual racial intervals the period under review.
The liquidity ratio is calculated using the formula: (6.7.)
where PDP, ODP are respectively positive and negative cash flow. The indicator value reflects the level of payment ability and synchronicity of formation of various types of cash flows. To ensure the necessary liquidity of cash flow, this ratio should have a value not same unit (exceeding one will generate growth balance of monetary assets at the end of the period under review,those. contribute to increasing the absolute payment ratio capacity of the enterprise).
5th stage- analysis of the efficiency of the enterprise's cash flows.
The following indicators are used for assessment:
ratio of the company's net cash flow (NCF) to negative cash flow (NCF):
(6.8.)
net cash flow reinvestment ratio - the ratio of the portion of net cash flow allocated to the company's turnover (RFDP) to the value of net cash flow (NCF):
(6.9.)
These general indicators can be supplemented with a number of private indicators - profitability ratio using changes in the average balance of monetary assets in short-term financial investments; coefficient of profitability of using the average balance of accumulated investment resources in long-term financial investments, etc.
The results of the analysis are used to identify operational reserves optimization of enterprise financial flows and their planning and control for the coming period.
Optimizing the financial flows of an enterprise is one of the most important functions of cash flow management, aimed at increasing the level of their efficiency in the plan period. Main optimization tasks: identification and implementationlization of reserves, allowing to reduce the firm’s dependence on external sources of raising funds; securitymore complete balance of positive and negative financial flows in time and volume; ensuring a closer relationship between cash flows by type of economic activity of the enterprise; increasing the amount and quality of numbers of the cash flow generated by business activities stuy of the company.
Planning of financial flows of an enterprise in terms of of their various types is predictive in nature due to the uncertainty of a number of its initial premises. It must be implemented is calculated taking into account various alternative calculation options for various scenarios for the development of initial factors (optimistic, realistic, pessimistic).
Ensuring effective control of cash flows of the enterprise, the object of which is: implementation of installations planned targets for the formation of the volume of cash funds and their expenditure in the prescribed areas; uniformity of cash flow formation over time; facevisibility of cash flows and their efficiency. These indicators controlled in the process of monitoring the current financialactivity of the enterprise.
