Net cash flow from investing activities. Analysis of cash flows for investment and financial activities

Net cash flow is one of the main indicators of business performance, designed to answer the question of management “Where is the money?”. Read what this indicator is, what components it is formed from and how to calculate it. And also see an example of calculating net cash flow.

What is this article about:

What is net cash flow

Net cash flow (NPF) is the sum of all cash inflows and cash outflows (minus) from a project over time intervals, usually months or years. The indicator is used to calculate the economic efficiency of an investment project, as well as to preparation of the company's cash flow statement for the past period.

The inflow and outflow of capital - this is the receipt and return of loans and borrowings, the payment of dividends to shareholders - are not used in calculating the NPV for an investment project, because otherwise the picture of the investment attractiveness of the project will be distorted.

Net cash flow formula

Before we talk about how to find net cash flow, let's consider what it consists of. NPV includes:

1. Cash flow from operations (OCF).
2. Cash flow from financing activities (FCF).
3. Cash flow from investing activities (ICF).

Therefore, net cash flow is determined by the formula:

where i is the time interval, usually a month or a year

The division of cash flow into operating, financial and investment carries an important semantic load. Given the overall result in terms of cash flow, it is difficult for you to say which of the company's areas of activity had a positive (or negative) effect on the change in cash.

Is the operating activity profitable? Or does this high debt load have a negative effect in the form of large amounts of interest payments? Or did the company invest in a new project or purchase new equipment during the reporting period? By dividing the cash flow into components, you will clearly see all the trends in your business and draw the right conclusions.

Imagine visually the cash flows belonging to each component.

Picture. Components of net cash flow

Depending on the specific situation, the same cash flows may relate to different types of activities. For example, interest on a loan can be both a financial activity, if the loan is taken to finance a current business, or an investment activity, if the loan is spent only on a new line of business. Leasing payments can also be both operating cash flow and financial and investment.

Users of net cash flow information

The company provides information on net cash flow in the cash flow statement (ODDS, in foreign practice, cash flow statement). It belongs to regulated reports, because it is difficult to overestimate its importance. The cash flow statement collects all information about changes in the company's cash during the reporting period.

For the company's management, net cash flow is company's liquidity management tool . That is, based on the data of the cash flow statement, managers can assess whether the company will be able to pay off accounts payable, whether there will be enough funds to invest in new projects, or vice versa, it is necessary to look for ways to externally finance activities.

The cash flow statement serves as a basis for lenders and investors to make investment decisions, shows how well a company can manage cash, whether it will pay dividends, and so on.

Methods for calculating net cash flow

In order to calculate net cash flow and complete the cash flow statement, you can use the direct or indirect method. The choice of calculation method that suits you depends on the current accounting in your company, on the completeness of the source data on income and expenses, and on your goals, of course.

direct method

The method is based on the direct use of the company's cash account data. To use it, it is necessary to carry out preparatory measures, that is, set up an accounting analyst system for the "bank" and "cash" accounts.

1. Complete the Activity Directory. Enter operating activities, financial activities, investment activities.
2. Fill out the cash flow item directory by entering all the items you need to account for.
3. Assign each cash flow an activity, a cash inflow item, or a cash outflow item.

As a result, at the end of the reporting period, you will receive a net cash flow, issued in the form of a cash flow statement using the direct method.

It will look like shown in Table 1.

Table 1. Example of ODDS (fragment)

The advantages of this method are:

• the ability to show sources of cash inflow and cash outflow, conduct analytics on counterparties, contracts, nomenclature, etc.;
• direct linkage to the cash flow budget and easy plan-fact analysis;
• ease of building a payment calendar based on data.

The direct method also has disadvantages, they are as follows:

• laboriousness. If the company uses the direct method of accounting for DDS, then field performers need to fill in at least two additional analytics for each movement. With large volumes, this is a catastrophic amount of labor hours;
• based on the ODDS formed by the direct method, it is impossible to determine the relationship between the financial result and the change in the amount of cash.

indirect method

The indirect method is considered easier to calculate net cash flow, although international reporting standards recommend using the direct method. In order to calculate the NPV using the indirect method, it is enough for you to have detailed data on the accrual of income and expenses of the company for the reporting period.

You need to act according to the algorithm:

1. Take the statement of financial position and statement of comprehensive income of the company for the reporting period.
2. Form the structure of the ODDS, for example, in Excel, as shown in Table 2.

table 2

1. Fill in the report sequentially, subtracting (adding) from the amount of the net financial result of a non-cash transaction on operating activities.

These operations include:

• depreciation of fixed assets and intangible assets;
• income / loss from the disposal of fixed assets and intangible assets;
• income / loss from revaluation of fixed assets and intangible assets;
• income tax expenses;
• income / loss from currency revaluation;
• creation / write-off of reserves;
• writing off bad debts.

As a result, you will receive a net cash flow from operating activities.

1. Next, enter the positive and negative cash flows from financing activities into the table, such as:

• obtaining loans;
• return of loans;
• financial lease obligations;
• equity contributions.

The result will be a net cash flow from financing activities.

1. Finally, enter all cash transactions of an investment nature, such as:

• acquisition of fixed assets, intangible assets, financial non-current assets;
• sale of non-current assets;
• receiving dividends;
• granted loans and interest on them.

Thus, you will form the NPV from investment activities.

1. The final step is to sum up the cash flows and obtain an indicator calculated by the indirect method.

The advantages of using the indirect method include:

1. Quick and easy filling of ODDS.
2. The ability to visually see the sources of cash flow formation and identify reserves for its optimization.

Disadvantages of the indirect method:

1. Based on it, it is impossible to form a cash flow budget.
2. It will be difficult for a non-financier to understand and analyze it.

When using both direct and indirect methods, it is necessary to check the change in cash for the period. Check what the net cash flow is, whether the equality is true

NDP \u003d DS end.p - DS start.p

If yes, then you filled out the ODDS correctly.

Net cash flow calculation example

Net cash flow is used not only for the statement of cash flows for the past period. It is a key parameter of investment planning. All investment indices and parameters are calculated based on this indicator. Let's take an example of how to form the NPV of an investment project and avoid common mistakes.

A company operating in the wholesale market of digital mobile equipment is considering an investment project to open a network of retail outlets in Moscow and St. Petersburg. The project has a useful and normative validity period of 3 years (further the company's strategy may be changed).

At the first stage, it is planned to purchase equipment (racks, counter lighting, trade equipment, etc.) for $20,000, installation and adjustment of this equipment will amount to $3,000, and another $900 is required to be invested in a year. The total revenue of the company at the end of the first year of the project is expected to be $120,000, of which the project itself should bring $40,000. According to the results of the first year, it is planned to pay dividends to shareholders in the amount of $6,000. Expected operating cash flows at the end of the year, expressed in prices of the initial year investment can be estimated from table 3 below (disposal value of the equipment is not taken into account).

Table 3. Expected operating cash flows of the project

The company realizes the initial investments at 40% with borrowed capital at 14%, the loan must be repaid in 3 years (the method of repaying the borrowed capital is annuity). The company previously incurred market research costs of $5,000.

We will form a net cash flow for the project. To do this, we will first figure out which payments we will include in the calculation and which not.

The cost of purchasing equipment, its installation and commissioning is included in the NPV. These are investment cash flows. At the same time, the initial costs should be reduced by the share of financing from external sources in the amount of 40%.

The initial cost will be: (20,000+3,000) * 0.6 = $13,800

Project revenue, variable costs and fixed costs are also included in NPV. These are operating cash flows. Depreciation must be separated from fixed costs and excluded from NPV. Depreciation is a non-monetary transaction.

But depreciation must be taken into account when calculating the forecast income tax, which should be included in operating cash flows.

The receipt and repayment of a loan should not be included in the net cash flow, since this is an inflow and outflow of capital, and interest on the use of the loan should be. They will refer to the financial cash flow.

Marketing research costs, like all other previously incurred costs (sunk costs), should not be taken into account in the NPV for the project. Criteria - although these flows are related to the expected flows for the project, they cannot be monetized.

Dividends payable and other general business cash flows (such as a loan, issuance of bonds, acquisition of financial assets) are not included in NPV, as this violates the “relevance” rule.

In the last year of the project, you should include the terminal value of fixed assets, because you will have the opportunity to sell the fixed assets on the free market if they are no longer needed.

The terminal value of fixed assets is calculated according to the formula:

First - ∑Am = 20,000 + 900 - (7,400 + 8,500 + 3,000) = $2,000

The final NPV for the investment project is generated in Table 4.

Table 4. Final NPV for the project

In conclusion, we note that the management of net cash flow is the second most important task for the financier after the management of profitability. Understand the mechanisms of NPV formation in your company and get an effective tool for influencing the money supply in circulation, and at the same time you will find the answer to such an important question of the manager “Where is the money?”.

During the operation of the enterprise or during the implementation of projects, incoming and outgoing cash flows are generated. Their focus and the predominance of one over the other indicates how successful the project is and what to expect from it in the future. Consider how the cash flow from the investment activities of the company is formed and how important it is in its activities.

Investment cash flow among other cash flows

When conducting a preliminary assessment and analysis of an investment project, the most important condition is the calculation of the expected cash flows (cash flow, or cash flow). Each calculated step for a given period of time is characterized by the following cash flow indicators:

• receipts of funds (inflow);
• costs in the form of payments;
• the difference between receipts and expenses (balance, balance sheet).

The cash flow of an investment project is considered as a summary indicator of flows generated by various types of activities:

• Operating room (internal, main). It affects the production sector (purchase of the necessary materials, parts, raw materials, energy supply, remuneration of employees, transfer of taxes, sale of the manufactured product).
• Financial. Here the basis is the work with external finance. This is the issue, sale and purchase of securities, the calculation of dividends, the attraction of subsidies, loans, subsidies, etc.
• Investment. In this direction, work is carried out with assets (their acquisition, modernization, expansion and sale).

Without full information about the expected movement of cash flows, it is impossible to correctly calculate the discounted value of the investment project, and without such an analysis it is not advisable to invest in the proposed undertaking.

How is the investment financial flow formed

The investment cash flow often has a negative indicator, since it contains mainly the costs of implementing the initiative, as well as its expansion and modernization in the course of implementation. It is usually covered by income received from the main activity of the enterprise (sale of goods or services).

Outflows consist of the following items:

• capital investments (research, development and construction works);
• purchase and installation of the necessary equipment;
• acquisition of intangible assets (copyrights, licenses, permits, rights to use something, for example, a land plot);
• commissioning works;
• expenses for the implementation of work on the liquidation of the object (environmental measures, reclamation, etc.);
• expenses aimed at increasing the volume of working capital.

Also, outflows include a number of non-capitalized expenses (costs for external infrastructure facilities, taxes on the land used for the project). If we are talking about capital construction, then investments should always be linked to the construction schedule. Investment costs are classified by types of costs.

The tributaries characteristic of this direction consist of:

1. Incomes received from the sale of enterprise assets (surplus equipment or raw materials, unused buildings or premises), their sale is most often made after the closure of the project, although this often occurs during its implementation. In particular, if a part of the equipment is no longer used in the production process, then it can be sold, the same can be said about the surplus of production and auxiliary areas.
2. Funds received from the sale of intangible assets (copyrights, intellectual property). Such transactions occur infrequently, but lead to significant inflows of funds.
3. Receipts resulting from a decrease in working capital.

This also includes non-operating income of the company. For example, a company has deposited temporarily unused money into a bank account. In this case, the interest on the deposit refers specifically to the investment monetary sector, while the return of the principal amount of the deposit refers to the financial sector.

As can be seen above, the dynamics of changes in working capital affect the inflow and outflow of money. At its core, the value of net working capital is the difference between cash assets and liabilities at the current time. When making calculations, the following criteria are mainly used:

1. current normalized liabilities, which include accounts payable;
2. current normalized assets, including accounts receivable, inventories and work in progress.

Consequently, when forming stocks of materials and raw materials for the needs of production, finances are spent for this (there is an outflow), thus, fixed capital increases. If stocks in such quantities are no longer needed, then some of them are sold (there is an inflow), and working capital decreases.

How investment cash flow is calculated

To calculate the cash flows from investment activities, experts recommend using a special table that enters the costs and receipts for each step with the appropriate sign.

When compiling an information table, you need to consider the following nuances:

• The entire period of implementation of the initiative is divided into segments (steps), according to which economic and financial indicators are evaluated. Most often, a calendar year is taken as such a segment, although in short-term or medium-term undertakings, the step may be a quarter or a month.
• The positions indicated in the table can be detailed depending on specific conditions.
• Costs and receipts are indicated in the currency in which they were made, at current prices.
• The last steps are characterized by the fact that they should take into account the costs of liquidating the enterprise (environmental measures, dismantling of equipment).
• The level of income from the sale of the remaining fixed assets upon liquidation of the project is advisable to establish using a forecast estimate, which may not coincide with the residual value of the specified property.

In fact, without the investment component, the implementation of the project is not possible. In order to subsequently receive income, it is first necessary to finance the acquisition or lease of a land plot or suitable premises, the purchase of equipment, transport, mechanisms, raw materials, materials, required permits and licenses. Therefore, the curve on the graph at the initial stage goes down sharply, and only after the start of production and the enterprise reaches its design capacity, revenues begin to gradually cover costs.

If the project is long-term, then investments can be made in parts. After a large initial investment, there may be a need for modernization or technical re-equipment to expand the range of products, replace failed equipment, and vehicles. Here the specifics of the work of the enterprise are of great importance. If there are free funds, they can be invested in securities or in the authorized capital of other business entities (purchase of a share or the entire company), as well as issue a loan to another company, this can also be attributed to an outflow from investment activities.

An investor can invest in the company's securities and not take part in its activities, agreeing to receive an agreed amount of dividends annually, in which case his income is called passive. If the investor is on the board of directors, participates in making important decisions that affect the amount of profit, then his income from the investment becomes active.

This beautiful and attractive name encrypts an important business indicator that answers the key question: “Where is the money?”. In this article, we will decipher the components of this indicator in more detail, derive the formula for its calculation and justify the method based on the assessment of net cash flows.

What is net cash flow (NPF)

This term comes from the English language. In the original, its name sounds like Net Cash Flow, the abbreviation NCF is accepted. In specialized literature, the designation Net Value is sometimes used - “current value”.

cash flow call the movement of funds in the organization: the receipt and disposal of finance and their equivalents. Incoming funds form a positive cash flow (English Cash Inflow, abbreviation CI), leaving - negative, or outflow (Cash Outflow, CO). When will it be considered "clean"?

DEFINITION. If we take a certain time period and trace the inflow and outflow of money during this period, adding up the positive and negative flows, then the resulting value will be Net cash flow, that is, the difference between the inflow and outflow of funds.

This is the key position of investment analysis, which can be used to determine:

• attractiveness of the organization for potential investors (economic efficiency of the investment project);
• current financial position;
• the ability of an organization to increase its value.

Components of net cash flow

The enterprise conducts various activities that require an outflow of funds and deliver an inflow. Each type of activity "carries" its cash flow. To determine the NPV, the following are taken into account:

• operating room - OSF flow;
• financial - FCF;
• investment - ICF.

IN operating cash flow includes:

• funds paid by buyers of goods or services;
• money paid to suppliers;
• salary payments;
• social contributions;
• rent payments;
• maintaining operations.

IN financial cash flow include:

• obtaining and repaying credits and loans;
• interest on loans and borrowings;
• payment and receipt of dividends;
• other payments for the distribution of profits.

Investment cash flow includes:

• remuneration to suppliers and contractors for non-current assets;
• payment for the delivery and installation of non-current assets;
• interest on loans for non-current assets;
• issuance and redemption of various financial assets (bonds, etc.).

NOTE! Sometimes certain receipts or payments can be attributed to different cash flows. For example, if a loan was taken to support the current business, it should be attributed to the FCF, and if its intended purpose is a new business line, this is already the ICF. The specific situation must always be taken into account.

Net cash flow formulas

The general formula for calculating NPV can be represented as follows:

NPV \u003d CI - CO, where:

• CI - incoming stream;
• CO - outgoing stream.

If we take into account the grouping of payments by reporting time periods, the formula will take the following form:

NPV \u003d (CI 1 - CO 1) + (CI 2 - CO 2) + ... + (CIN– CON).

In a generalized form, the formula can be represented as follows:

NPV =i=1 n ( CI i – COi), where:

• CI - incoming stream;
• CO - outgoing stream;
• n is the number of cash flow estimates.

It is possible to represent the NPV as a set of flows from different types of activities of the organization: operating, financial and investment):

NPV \u003d (CI - CO) OSF + (CI - CO)FCF + (CI - CO)ICF.

This division has an important meaning: the final result will not show in which of the activities how it influenced the final flow, which processes had this effect and what are the trends.

NPV calculation methods

The calculation method is selected based on the purpose, as well as on the completeness of the reporting data. Users choose between direct and indirect calculation of NPV. In both cases, it is important to separate flows by activity.

Direct Method for Calculating NPV

It relies on accounting for the movement of funds in the accounts of the organization, reflected in the accounts, in the General Ledger, journals-orders separately for each type of activity. The main indicator is the company's sales revenue.

The direct method allows you to quickly track the inflows and outflows of the organization's funds, control the liquidity of assets, solvency.

FOR YOUR INFORMATION! This method is used for the cash flow reporting form developed by the Ministry of Finance of the Russian Federation and approved by Order No. 4N dated January 13, 2000 No. 4N “On Forms of Accounting Statements of Organizations”.

To calculate NPV using this method, you need to add positive flows (revenue, other receipts) and subtract costs, tax payments and other negative flows from them.

The direct method, unfortunately, does not allow linking the final financial result (net profit) with changes in monetary assets.

Indirect method for calculating NPV

This method, in contrast to the direct method, shows the relationship between cash flows and financial results.

Net income is not exactly the same as cash flow growth. A more in-depth study says that profits can be both less than NPV and more than it. For example, in the analyzed period, they purchased new equipment, that is, increased costs, which will lead to an increase in profits not in this, but only in the following periods. They took out a loan - the cash flow increased, but the net profit did not increase. The main differences between NPV and net profit are shown in Table 1.

Tab. 1 Difference between net cash flow and net income

The indirect method converts net income into cash flow indicators by making adjustments, namely:

• depreciation charges;
• movements on liabilities;
• changes in assets.

The indicators are taken from the balance sheet and its appendices, the financial report, the General Ledger.

To calculate NPV by the indirect method, it is necessary to sum up the indicators of net profit and the amount of depreciation of tangible and intangible assets, as well as the delta (decrease or increase) of accounts payable and reserve funds, then subtract the delta of receivables and inventories. Thus, it is clear how the movement of figures on the balance sheet affects the net cash flow - changes in the value of assets and liabilities.

Estimation of the NPV indicator

NPV is greater than zero(positive cash flow) can arise either due to an increase in liabilities or a decrease in assets. In any case, the receipt of funds is greater than their outflow. This indicates the investment attractiveness of the company in this period. To evaluate an investment project, one should take into account a long period, including the payback period of investments, and apply. The greater the value, the more attractive the project will be for investors.

When comparing the net cash flows of two different organizations, the one with the higher this indicator will be considered more investment attractive.

NPV is close to zero- this indicator indicates that the organization does not have enough funds to increase the value. Investors reject such projects.

NPV is less than zero(negative cash flow) - the outflow of funds exceeds their receipt. The enterprise is financially unprofitable, of course, investments in it are unacceptable.

Optimization of financial, production and investment processes is unthinkable without qualitative analysis. On the basis of the data of the conducted researches and reports, the planning process is carried out, the unfavorable factors hindering the development are eliminated.

One of the types of evaluation of the effectiveness of financial activity is the calculation cash flow. Formula and features of the application of this technique will be presented below.

Purpose of analysis

Cash flow formula calculated according to certain methods. The purpose of such an analysis is to determine the sources of cash flow to the organization, as well as their expenditure to calculate the deficit or excess of money for the period under study.

To carry out such a study, the enterprise generates a cash flow statement. A corresponding estimate is also drawn up. With the help of such documents, it is possible to determine whether the available funds are sufficient for the organization of a full-fledged investment, financial activity of the company.

The conducted research allows to determine whether the organization is dependent on external sources of capital. It also analyzes the dynamics of inflow and outflow of funds in the context of each type of activity. This allows you to develop a dividend policy, to predict it in the future period. Cash flow analysis aims to determine the actual solvency of the organization, as well as its forecast in the short term.

What does the calculation give?

Cash flow, calculation formula which is presented in various methods, requires proper analysis for the possibility of effective management. In the case of the presented study, the organization gets the opportunity to maintain a balance of its financial resources in the current and planned period.

Cash flows must be synchronized in terms of their time of receipt and volume. Thanks to this, it is possible to achieve good indicators of the company's development, its financial stability. A high degree of synchronization of incoming and outgoing flows makes it possible to accelerate the execution of tasks in a strategic perspective, and reduce the need for paid (credit) sources of financing.

Financial flow management allows you to optimize the use of financial resources. The level of risk in this case is reduced. Effective management will help to avoid the insolvency of the company, increase financial stability.

Classification

There are 8 main criteria by which cash flows can be grouped into categories. Taking into account the methodology by which the calculation was made, they distinguish between gross and for the first approach it involves summing up all the cash flows of the enterprise. The second method takes into account the difference between income and expenses.

According to the scale of influence on the economic activity of the organization, the general flow for the company, as well as its components (for each division and economic operations), are distinguished.

By type of activity, production (operating), financial and investment groups are distinguished. In the direction of movement, a positive (incoming) and negative (outgoing) flow is distinguished.

Considering the sufficiency of funds, a distinction is made between excess and shortage of funds. The calculation can be made in the current or planned period. Also, flows can be classified into discrete (one-time) and regular groups. Capital can flow in and out of an organization at regular intervals or randomly.

Net flow

One of the key indicators in the presented analysis is Net cash flow. Formula This coefficient is used in the investment analysis of activities. It gives the researcher information about the company's financial condition, its ability to increase its market value, and its attractiveness to investors.

Net cash flow is calculated as the difference between the funds received and withdrawn from the organization for a selected period of time. This is actually the sum between the indicators of financial, operating and investment activities.

Information about the size and nature of this indicator is used in making strategic decisions by the owners of the organization, investors and credit companies. At the same time, it becomes possible to calculate whether it is advisable to invest in the activities of a particular enterprise or in a prepared project. The presented coefficient is taken into account when calculating the value of the enterprise.

Flow control

Cash flow ratio, formula which is used in calculations by almost all large organizations, allows you to effectively manage financial flows. For calculations, it will be necessary to determine the amount of incoming and outgoing funds for a specified period, their main components. Also, the breakdown is performed in accordance with the type of activity that generates a certain movement of capital.

The calculation of indicators can be done in two ways. They are called indirect and direct methods. In the second case, the data of the organization's accounts are taken into account. The fundamental component for conducting such a study is the indicator of sales revenue.

The method of indirect calculation involves using for the analysis of the balance sheet items, as well as the statement of income and expenses of the enterprise. For analysts, this method is more informative. It will allow you to determine the relationship between profit in the study period and the amount of money of the enterprise. The impact of changes in balance sheet assets on the net profit indicator can also be considered using the presented methodology.

Direct settlement

If the calculation is made at a particular moment is determined current cash flow. Formula its simple enough:

NPV = NPO + NPF + NPI, where NPV - net cash flow in the study period, NPO - cash flow from operating activities, NPF - from financial transactions, NPI - in the context of investment activities.

To determine the net cash flow, you must use the formula:

NPV \u003d VDP - IDP, where IDP is the incoming flow of money, IDP is the outgoing flow of funds.

In this case, the calculation is carried out for one or more calculation periods. This is a simple formula. The components from each type of activity must be calculated separately. In this case, it is necessary to take into account all the components.

Calculation of net investment flow

The bulk of the organization's funds at the disposal of the company at the moment comes from operating cash flow. Formula calculation of the net indicator (was presented above) necessarily takes into account this value.

NPI \u003d VOS + PNA + PDFA + RA + DP - PIC + SNP - PNA - PDFA - VSA, where VOS - revenue received from the use of fixed assets, PNA - income from the sale of intangible assets, PDFA - income from the sale of long-term financial assets, RA - income from the sale of shares, DP - interest and dividends, PIC - acquired fixed assets, COP - balance of work in progress, PNA - purchase of intangible assets, PDFA - purchase of long-term financial assets, VSA - the amount of repurchased own shares.

Net Cash Flow Calculation

Cash flow formula uses data on the net Calculation is carried out according to the following formula:

NPF \u003d DVF + DDKR + DKKR + BCF - VDDK - VKKD - YES, where DVF - additional external financing, DDKR - additionally attracted long-term loans, DKKR - additionally attracted short-term loans, BCF - non-repayable targeted financing, VKKD - debt payments under VKKD - payments on short-term loans, YES - dividend payments to shareholders.

indirect method

Indirect also allows you to determine the net cash flow. Balance Formula involves adjustments. For this, data on depreciation, changes in the structure and number of current liabilities and assets are used.

The calculation of net profit from operating activities is made according to the following formula:

NPO \u003d PE + AOS + ANA - DZ - Z - KZ + RF, where NP - net profit of the enterprise, AOS - depreciation of fixed assets, ANA - depreciation of intangible assets, DZ - change in receivables in the study period, Z - change in stocks, KZ - change in the amount of accounts payable, RF - change in the indicator of reserve capital.

The net cash flow is directly affected by changes in the value of the company's current liabilities and assets.

free cash flow

Some analysts use the indicator in the process of studying the financial condition of the organization free cash flow. Formula calculation of the presented indicator is considered in two main aspects. Distinguish between the free cash flow of the firm and capital.

In the first case, the indicator of the company's operating activity is considered. It subtracts investment in fixed assets. This indicator provides information to the analyst about the amount of finance that remains at the disposal of the company after investing capital in assets. The presented methodology is used by investors to determine the feasibility of financing the company's activities.

The free cash flow of capital involves subtracting from the total amount of finance of the enterprise only its own investments. This calculation is used most often by the shareholders of the company. This technique is used in the process of assessing the shareholder value of the organization.

Discounting

To compare future financial payments with the current state of the value, a discounting technique is applied. This technique takes into account that in the long term, money gradually loses its value relative to the current state of the price. Therefore, the analysis uses discounted cash flow. Formula it contains a special coefficient. It is multiplied by the amount of the cash flow. This allows you to correlate the calculation with the current level of inflation.

The discount factor is determined by the formula:

K = 1/(1 + SD)VP, where SD is the discount rate, IP is the time period.

The discount rate is one of the most important elements in the calculation. It characterizes how much income an investor will receive when investing his funds in a particular project. This indicator contains information about inflation, profitability in the context of risk-free operations, profit from increased risk. Also, the calculations take into account the refinancing rate, the cost (weighted average) of capital, deposit interest.

Optimization Approaches

When determining the financial condition of the organization, take into account discounted cash flow. Formula may not be taken into account if the indicator is given in the short term.

The process of optimizing cash flow involves establishing a balance between the company's expenses and income. Scarcity and surplus negatively affect the financial condition and stability of the organization.

When there is a shortage of funds, liquidity ratios decrease. Solvency also becomes low. An excess of funds entails the actual depreciation of temporarily idle funds due to inflation. Therefore, the company's management must balance the amount of incoming and outgoing flows.

Considering what is cash flow formula its definition, it is possible to make decisions on optimizing this indicator.

Economic science under the investment cash flow understands the actual current receipts, which are directly related to the implementation of the project under consideration. This money should be distinguished from other payments received by the investor from other areas of his activity.

Thus, we can consider the investment flow as financial income from the implementation of the investment project per unit of time.

Let's look at all this with a specific example. An investor has acquired a stake in an oil company. All securities earn an annual income. That is, in the situation under consideration, the amount of cash flow that the investor will receive will be equal to the amount of dividends.

First of all, it is necessary to understand that cash flows arise not only in the framework of investment processes, but also in the financial sector and operational activities.

The cash flow that is directed to the investor is also called inflow. On the contrary, the money that moves in the opposite direction is called an outflow.

At the initial and early stages of the life cycle of an investment project, cash flows in 100% of cases will be an outflow. You don't need to be surprised. This looks quite natural, if we remember that the pre-investment and investment phase (stage) of the implementation of an investment project always accounts for the bulk of the investor's expenses.

When an investment project enters the operational phase, the outflow of funds is gradually replaced by an inflow. And with the passage of time, this difference becomes more and more impressive. This is where the investor begins to earn and receive substantial returns on invested capital.

Financial flow is the movement of money as a result of financial transactions. This may be the receipt and repayment of bank loans, the payment of dividends to shareholders, contributions to the authorized capital of the company, the payment of interest, and so on.

Within the framework of each investment project, it is customary to separate the investment and operational flows. In addition, debt-free, discounted and net cash flows are considered separately. Moreover, the investor, at his discretion, may consider separately other receipts and withdrawals of funds.

The ratio of cash inflows and outflows is commonly referred to as EBIDTA (Earnings Before Interest, Taxes, Depreciation and Amortization). In fact, this indicator indicates the income of the investor until the deduction of mandatory current expenses or costs. In turn, these include:

• depreciation;
• taxes and fees;
• payment of interest on bank loans.

This indicator within the framework of an investment project is the key to determining the EBITDA margin, which shows the return on investment. It is usually calculated as an index, which is expressed as a percentage. EBITDA margin is calculated as the ratio of EBITDA to real revenue.

Cash inflows (receipts) in investment projects are always formed as part of the operating activities of the investment object.

Net cash flow is calculated as EBITDA minus interest on loans, investments and loan repayments.

The debt-free stream is considered as EBITDA minus investments in the current year of the investment project's life cycle.

Discounted cash flow reflects the net present value of the investment project - NPV. It is this indicator that is traditionally perceived as the main measure of the effectiveness of the project under consideration.

Flow control

Proper cash flow management is the basis for a successful investment activity. However, it can take different forms. Cash flow management is operational and strategic. Between these forms, the difference is the same as between tactics and strategy, respectively. Their formation is based on investment planning. Time is a key factor in creating specific cash flow management steps.

1. The current planning stage is expressed in the preparation of a payment calendar with a mandatory breakdown by day. This document is distinguished by the maximum degree of elaboration and detailing of the expected inflows (outflows) of funds.

2. The monthly planning stage is formed on the basis of the annual budget. The plan is worked out quite deeply, but not in detail.

3. The annual planning stage is built up to a month. It is customary to draw up on the basis of a long-term investment strategy. When forming this plan, it is imperative to take into account the dynamics of the main macroeconomic indicators. Differs in the average level of study and detailing.

4. The stage of long-term planning is drawn up for 3-5 years. It is based on the main investment goals and objectives. The detail is insignificant.

The purpose of the formation of all the documents listed above is the most accurate modeling of the cash balance at the end of a particular period. On the basis of such calculations, it is possible with a high degree of probability to assume whether the investor has enough funds to implement existing investment projects.