new frontier s e r v i c e s cash flow. 2 new frontier s e r v i c e s table of contents 1.what is...
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new frontier s e r v i c e s
new frontier s e r v i c e s
CASH FLOW
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new frontier s e r v i c e s
new frontier s e r v i c e s
TABLE OF CONTENTS
1. WHAT IS CASH?
2. WHAT IS CASH FLOW?
3. WHY IS CASH FLOW IMPORTANT?
4. THE CASH FLOW STATEMENT
5. HOW IS CASH FLOW CALCULATED?
6. SAMPLE CASH FLOW STATEMENT
7. MORE INFORMATION
8. REFERENCES
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1.WHAT IS CASH?
‘Cash’ is money you have rapid access to
For example:
• Liquid money
• Money in current accounts and short term deposits
• Foreign currency and deposits that can quickly be converted into your currency
Cash is used to cover the ‘current loans’, (see Balance Sheet presentation) such as paying creditors, bills and employees
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2. WHAT IS CASH FLOW?
‘Cash flow’ is the movement of cash in and out of a business during a given period of time
An ample cash flow means that the company can re-invest the cash into the business or is able to cover current loans on time. If it were not able to cover these debts then it would be ‘insolvent’ and at risk for bankruptcy were the insolvency to continue
Cash flow can be used to analyze the movement of cash specific to a project or to the business as a whole.
It is important to obtain information on the cash flow and know how to manage and monitor it because without cash a business will die
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3. WHY IS CASH FLOW IMPORTANT? (I)
Cash flow is the most important aspect of any business
An analysis of the Cash Flow will give and idea on:
• short or long-term funding requirements
• financial strength of the business
Businesses offer their costumers a credit when they buy goods or services, meaning that it will need other resources to cover imminent costs such as:
• paying salaries
• monthly rent
The timing of cash movements will need to allow a positive cash flow for the company to continue its activity
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Credit for purchase Payment of purchase
Cash is moving out before moving in. In order to have a positive cash flow the business will need other financial resources available to cover imminent costs during this period of time.
Cash mouvement : InCash mouvement : Out
Weeks
1 32 4
The following diagram illustrates the period of time during which a postive cashflow is fundamental:
The following diagram illustrates the period of time during which a postive cashflow is fundamental:
3. WHY IS CASH FLOW IMPORTANT? (II)3. WHY IS CASH FLOW IMPORTANT? (II)
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4. THE CASH FLOW STATEMENT
The ‘cash flow statement’ illustrates the changes in cash flow over a precise period of time.
The statement can refer to past actions or can be a forecast of future ones
The statement analyses the sum of the following three activities:
• Operational cash flow: this refers to the operational costs and cash incomes as a result of the company’s recurring activity
• Investment cash flow: cash received or spent on investments
• Financing cash flow: cash received from loans or spent on loan repayments and payment of dividends (Shareholders’ percentage of profit)
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The following list describes what is meant by ‘Inflows’ and ‘outflows’ of cash:
Cash inflows– Payment for goods or services from your customers – Interests on savings and investments– Shareholder investments– Increased bank overdrafts or loans
Cash outflows– Purchase of stock, raw materials or tools – Wages, rents and daily operating expenses– Purchase of fixed assets - PCs, machinery, office furniture, etc – Loan repayments– Payment of taxes
5. HOW IS CASH FLOW CALCULATED? (I)
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The ‘Net cash flow’ is the difference between incoming and out coming cash in a precise period of time
A positive net cash flow illustrates the company’s ability to generate surplus cash in order to sustain the company
5. HOW IS CASH FLOW CALCULATED? (II)5. HOW IS CASH FLOW CALCULATED? (II)
Net Cash Flow = Sum of inflows – Sum of outflows Net Cash Flow = Sum of inflows – Sum of outflows
Over a specific period of timeOver a specific period of time
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20082008 20092009 20102010 20112011 20122012
Source of FundsSource of Funds
Beginning cash 0 -11,767 143,765 416,274 924,480
Sales/Svcs Income 1,366,986 2,662,548 3,416,123 4,565,616 5,981,959
Sale of Assets 0 0 0 0 0
Customer deposits 0 0 0 0 0
Loans 0 0 0 0 0
Contributed Capital 400,000 0 0 0 0
Available Cash $1,766,986 $2,650,781 $3,559,888 $4,981,890 $6,906,439
Use of FundsUse of Funds
Salaries 1,355,000 1,676,000 2,044,000 2,557,000 3,355,000
Other operating expenses
423,753 759,933 900,245 1,187,340 1,533,432
Loan payments 0 24,910 99,640 99,640 99,640
Capital Expenditures 0 0 0 0 0
Tax Payments 0 46173 99729 213430 277791
Total Cash Out $1,778,753 $2,507,016 $3,143,614 $4,057,410 $5,265,863
Net Cash Flow ($11,767) $143,765 $416,274 $924,480 $1,640,576
Source: www.businessplans.orf, viewed the 05/10/10 http://www.businessplans.org/cashflow.html Source: www.businessplans.orf, viewed the 05/10/10 http://www.businessplans.org/cashflow.html
6. SAMPLE CASH FLOW STATEMENT
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7. MORE INFORMATION AT :
www.bized.co.uk
www.myownbusiness.org
www.smallbusiness.co.uk
www.cashflowtruth.com
www.learn-about-cash-flow.com
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8. REFERENCES www.businesslinks.gov.uk, viewed the 05/10/10
http://www.businesslink.gov.uk/bdotg/action/detail?r.s=sc&r.l1=1073858790&r.lc=en&r.l3=1073924763&r.l2=1084596842&r.i=1073791118&type=RESOURCES&itemId=1073791119&r.t=RESOURCES
www.businessplans.orf, viewed the 05/10/10 http://www.businessplans.org/cashflow.html
www.investorwords.com, viewed 05/10/10 http://www.investorwords.com/768/cash_flow.html
www.bized.co.uk, viewed 05/10/10 http://www.bized.co.uk/educators/level2/finance/lesson/cashflow1.htm
www.businesslink.gov.uk, viewed 05/10/10 http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073924763
www.accountingcoach.com, viewed 05/10/10 http://www.accountingcoach.com/online-accounting-course/06Xpg01.html
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Legal disclaimer: The sole responsibility for the content of this presentation lies with the authors. It does not necessarily reflect the opinion of the European Union. Neither the EACI nor the European Commission are responsible for any use that may be made of the information contained therein.