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Topic 14. Analysis of cash flows.

14.1. Essence and need for analysis of cash flows.

General assessment of cash flows.

The implementation of economic activity constantly generates changes in the company's cash
resources. In terms of its economic nature, cash flows represent their revenues and disposals
during the reporting period. The difference between the amount of proceeds and the amount
of retirement constitutes a net cash flow. At the initial stage, changes in the absolute and
relative magnitude of cash flows are compared with the previous period and the planned
level. At the same time, the absolute deviation of cash flows, the rate of growth, the rate of
growth, the percentage of fulfillment of the plan, and the percentage of deviation from the
plan can be calculated.

The results obtained must meet the following requirements:

1. A successful operating activity must generate a positive net cash flow.

2. Maintaining and developing the economic potential of the enterprise causes the emergence
of a negative net cash flow from investment activities.

3. Positive flows from operating and financial activities should compensate for the negative
flow from investment activities.

Failure to comply with the first and last conditions is the reason for the decrease in the
balance of cash and insolvency of the enterprise. Neglecting the second condition determines
the reduction of the enterprise's potential in the future.

Example. Dynamics and implementation of the plan for the flow of cash II Plesca (lei).
Type of the activity Years Absolute deviation
2013 2014 2015 2014/2013 2015/2014
Operational activity
Investing activity
Financing activity
Extraordinary
income (retirement)
Total net flow
Conclusion:
14.2. Structural analysis of cash flows

Structural analysis is a detailed information on the origin of cash receipts and their
further use. This analysis allows us to estimate the contribution of each constituent element of
the cash flow to the formation of a common flow. Two ways of implementing a structural
analysis of cash flow are used in the economy: direct (isolated) and indirect (combined).
The essence of the direct method consists in a separate study of the structure of cash
receipts and payments with the calculation of the unit weight of each component element in
the total amount of receipts and payments. When applying this method, circular type
diagrams are used, with the help of which the structure of cash flows is presented in a more
accessible form.

Example. Direct analysis of cash flow II Plesca (lei)

Cash flow 2013 2014 2015


lei Share,% lei Share,% lei Share,%
Cash income

1.Sales
2.other operating
inflow
3.dividents
received
4.credit
andloansreceived
Total cash
receipts
Cash payments
1.payment to
suppliers
2.peyments to
employees
3.payment of
interest
4.payment of
income tax
5.other operating
payments
6.Payments on
credit and loans
7.payment of
dividents
Total payments

An indirect analysis of the structure of cash flow allows us to estimate the ratios
existing among various components of cash receipts and payments and involves the
following stages:
1. All items of the Cash Flow Statement are grouped into two groups: income and
disbursements( выплаты/plati);

2. The total amount of cash receipts is compared with the total amount of cash payments and
the largest of them (in modulus/pemodul) is represented as 100%;

3. Each article of the Report is expressed in% of the above amount;

4. The total of cash receipts and payments is balanced by a positive or negative net flow.

When using this method, both circular and bar charts can be used.

Example. Indirect analysis of the cash flow II Plesca(lei)

Cash flow 2013 2014 2015


Lei….. Share,% Lei……. Share,% Lei…… Share,%
Cash income
1.Sales
2.other operating inflow
3.dividents received
4.credit andloansreceived
Total cash inflow
Total net outflow
Cash payments
1.payment to suppliers
2.payments to employees
3.payment of interest
4.payment of income tax
5.other operating
payments
6.Payments on credit and
loans
7.payment of dividents
Total payments
Total net inflow
Conclusion:
14.3. Factor analysis of cash flows

The purpose of this stage is to identify the main reasons that led to significant changes
in cash flow. Since there is an additive relationship, the balance method is used:

General net cash flow= (cash inflow Op -cash outflow) + (cash inflow In -cash
outflow In)+ (cash inflow F -cash outflow F)

To determine the impact of changes in cash payments on the resultant indicator, the
absolute deviation of payments from their value during the comparison period is reversed by
the corresponding sign.
Example: Factorial analysis of cash flow
Cash flow according to activity 2014 2015 Absolute Influence on
deviation General
Net cash flow
Operational activity
Sales inflow
Other operating inflow
Payments to suppliers
Payments to employees
Payments of interest
Payments of Income tax
Other cash payments
Investing activity
General net cash flow

Conclusion: