How to calculate the net cash flow and the ratio of its sufficiency

When it is necessary to analyze the financial performance of a company, economists use such a thing as net cash flow. It is difficult for a non-specialist to understand terminology without explanation. Therefore, the issue requires special coverage.

At the end of the reporting period, a calculation is made of the cash flow of the manufacturing company or organization, which includes the difference between the funds received and expended. To clarify the interpretation of the concept, you can refer to special economic dictionaries, where the following definition of cash flow is found: the so-called all the cash that remains with the enterprise after satisfying the financial needs of the business. You can formulate the following definition of the term: net cash flow is the total amount of cash that an enterprise uses to form its capital or investments.

Methods of calculating net cash flow are used by financial departments at enterprises to monitor incoming and outgoing funds. This is necessary to maintain the financial balance of the enterprise. The quantitative result of net cash flow consists of the difference between cash flows positive and negative. Positive are the amounts of cash receipts for the enterprise, it can be income from the main activity of the company, as well as from investment or financial. Negative cash flow is the sum of the funds spent.

As a result, the company's cash flows, Taken as a whole, Give the cumulative index.

For the company, the main form of profit is its activities related to production, and the resulting cash is the income from the sale of goods or services. Finance, which is spent by the company in the main line of business, is the purchase of raw materials, wages to employees, payment to suppliers,

The investment activity of an enterprise includes the acquisition or sale of long-term assets. To the incoming cash flow can be attributed dividends and interest, which come from securities, shares. The expenses will include acquired copyright, intangible assets, work licenses, and the right to use land resources. That is, expenditure cash flows will be spending and investing in resources that can bring profit in the future.

As the company's main financial indicator, net cash flow demonstrates how stable and successful it is.

To analyze the cash flows, use the coefficient method. It allows you to take into account the levels of their deviation from the planned indicators, the effectiveness of the organization's use of funds. The method reveals both negative and positive trends that affect the formation of the cash flow of a commercial or production organization. It is important for managers to know these indicators in order to correctly correct the activity of an enterprise and optimize it.

When analyzing the cash flow, the net cash flow adequacy ratio is taken into account. To calculate this indicator, you need to determine the ratio of net cash flow for the reporting period to the amount of payments on loans (both short-term and long-term) paid to dividends and growth over the reporting period of balances of negotiable tangible assets.

To establish a generalized indicator use a coefficient that shows the effectiveness of existing cash flows at the enterprise. For this, a quantitative ratio is found that has a net cash flow to the financial means spent for the reporting period.

Coefficient analysis of the financial performance of the enterprise has other indicators, which are calculated by special formulas. These include the coefficients of reinvestment, liquidity of cash flows, etc. All of them are recommended to be analyzed in dynamics.