Optimization of cash flows in an industrial enterprise
Table of contents: The Kazakh-American Free University Academic Journal №9 - 2017
Tokarchuk Victor, Kazakh-American Free University, Kazakhstan
Nepshina Victoria, Kazakh-American Free University, Kazakhstan
Cash flow is the amount of money that an organization receives or
pays during a reporting or planned period.
Cash flow reflects the movement of cash, which in some cases is not
taken into account in calculating profits, as well as depreciation, investment
costs, tax payments, fines, penalties, borrowed and advanced funds, etc.
The inflow of funds is carried out through: proceeds from the sale
of products, works, services; Increase in the authorized capital from the
additional issue of shares; Received loans, loans and funds.
The outflow of funds arises from coverage of current costs,
investment costs, and payments to the budget and extra-budgetary funds, payment
of dividends to the shareholders of the organization, etc.
Net cash inflow (cash reserve) is formed as the difference between
all receipts and deductions of cash.
The content of money turnover can be viewed from the perspective of
its essence, types of cash flows, turnover, and structure. In essence, the
money turnover is a process of continuous movement of money in cash and
non-cash forms, reflecting the patterns of movement of money and goods. Its
material basis is commodity circulation. Money turnover is the aggregate of all
flows of money flow .
Effective cash management increases the degree of financial and operational
flexibility of the company, as it leads to:
1. Improving operational management, especially in terms of
balancing revenues and spending money;
2. Increase sales and optimize costs through greater maneuverability
of the company's resources;
3. Improving the efficiency of debt management and the cost of their
services, improving the terms of negotiations with creditors and suppliers;
4. Creation of a reliable basis for evaluating the performance of
each of the company's divisions, its financial status as a whole;
5. Increase the liquidity of the company.
The main purpose of cash flow management is to ensure the financial
balance of the organization in the process of its development by balancing the
volumes of receipt and spending of money resources and their synchronization in
The process of managing cash flows of an organization consistently
covers the following main stages:
- analysis of the organization's cash flows in the previous period;
- identification and analysis of factors affecting the formation of
- selection of directions for optimizing cash flows;
- budgeting of cash flows;
- full, timely and reliable accounting of transactions with cash;
- control (audit) of the legality of settlement transactions and the
correctness of their reflection in the accounting;
- analysis of the cash flow of the reporting period;
- determination of the optimal level of cash;
- forecasting of cash flows.
Depending on the type of activity, cash flows for operating,
investment and financial activities are distinguished .
Operating activities bring the organization the main revenue and the
main cash flows. Operational (current) activities are the activities of the
organization pursuing profit-making as the main goal, or not having
profit-making as such purpose in accordance with the object and purpose of the
So, cash flows from operating activities mainly arise from the main,
revenue-generating activities of the organization and are the result of
operations and events included in the definition of net profit (loss). Cash
flows from operating activities include:
- cash receipts from the sale of goods, products, works, services,
repayment of receivables, leases and other income;
- cash payments to suppliers of raw materials, materials and
services, staff salaries, taxes and fees to budgets of all levels and extra
budgetary funds, interest on loans and borrowings and other payments related to
the implementation of the operational process.
Investment activity is the company's activities related to capital
investments in connection with the acquisition of fixed assets, intangible
assets and other non-current assets, as well as their sale; with the
implementation of long-term financial investments in other enterprises, the
sale of securities, other financial investments, etc.
Thus, investment activity is the acquisition and sale of long-term
assets and financial investments that are not related to cash equivalents.
The financial activities of the company are activities related to
the implementation of short-term financial investments, the issuance of shares
and other securities, the attraction and repayment of loans, etc. Financial
activity leads to changes in the size and structure of own and borrowed
Important for effective financial management in the enterprise is
the organization of cash flows taking into account external conditions and
features of its economic activities. Thus, one of the most important management
tasks under the leadership of an enterprise is the organization of the movement
of cash and material flows .
On the one hand, it is necessary to maximize the flow of funds per
unit of time, on the other; it is most effective to use available funds. In
modern conditions with a high level of inflation delays in the receipt of funds
lead to their rapid provision, and irrational use - to a fall in the
profitability of the enterprise.
To choose the best form of cash flow management and to form a system
of accounting-analytical support, it is necessary to consider in detail the
factors that affect their volume, intensity, and the character of formation
In the system of external factors, the main role is played by: the
conjuncture of the commodity market; Conjuncture of the stock market; Taxation
system of the enterprise; The established practice of lending to suppliers and
buyers of products; The system for effecting settlement transactions of
economic entities; Availability of a financial loan; The possibility of raising
funds for free targeted financing.
In the system of internal factors distinguish:
- The life cycle of the enterprise;
- Duration of the operating cycle;
- Seasonality of production and sale of products;
- The urgency of investment programs;
- Amortization policy of the enterprise;
- Operational (operational) leverage;
- Financial mentality of owners and managers of the enterprise.
The advantages of the proposed classification are obvious. This is a
clearly traced system of approach, and a clear logic of these characteristics
of factors and their impact on cash flows, and the disclosure of the
relationship between factors.
Preliminary assessment of the financial position of the enterprise
is carried out on the basis of financial statements. Financial reporting - a
set of accounting records reflected in the form of certain tables and
characterizing the movement of property, liabilities and the financial position
of the company for the reporting period. There are four main types of financial
- the balance sheet is one of the components of the financial
statements formed by the organization. Elements of accounting information about
the financial position of the organization, which are reflected in the balance
sheet, are assets, liabilities and capital. The balance sheet should
characterize the financial position of the organization as of the reporting
- the profit and loss account contains the data on incomes, expenses
and financial results in the total amount from the beginning of the year to the
- the statement of changes in equity discloses information about the
movement of the authorized capital, reserve capital, additional capital, as
well as information on changes in the amount of undistributed profit
(unprotected loss) of the organization;
- the cash flow statement shows the difference between the inflow
and outflow of cash for a certain reporting period. At this stage of the
analysis, an initial view of the enterprise's activities is formed, changes in
the composition of the enterprise's assets and their sources are revealed, and
interrelations between the indicators are established .
To this purpose, we determine the ratio of individual items of
assets and liabilities of the balance sheet, their specific weight in the
total; we calculate the amount of deviation in the structure of the main
balance sheet items in comparison with the previous period. At the same time,
the total amount of the change in the currency of the balance is broken down
into constituent parts, which allows making preliminary conclusions about the nature
of the existing shifts in the composition of assets, the sources of their formation
and their mutual conditionality. So, in the process of preliminary analysis,
changes in the volume of real estate and current or current assets are
considered in connection with changes in the obligations of the enterprise.
One of the main methods of financial analysis is vertical analysis.
Vertical analysis is carried out for the purpose of determining and
comparing the results of the specific weights of individual balance sheet
items, one period to another. At the moment, vertical analysis is one of the
most widely spread forms for analyzing the financial performance of any
Today almost all companies carry out a vertical analysis. The main
essence of vertical analysis is the definition of the structure of the funds of
this enterprise and their sources.
Liquidity ratios are financial indicators calculated on the basis of
the enterprise's reporting to determine the ability of the company to repay
current debt due to available current (current) assets. The meaning of these
indicators is the comparison of the amount of the current debts of the
enterprise and its working capital, which must ensure the repayment of these
The absolute liquidity ratio shows how much of the short-term
liabilities can be repaid at the expense of available cash. The higher this
value, the greater the guarantee of debt repayment.
The current liquidity ratio (total coverage ratio) shows the extent
to which current assets cover short-term liabilities. A coefficient with a
value greater than 2.0 is considered satisfactory.
The main source of the company's cash flow is revenue from sales of
products and profits. The absolute value of these indicators, as well as their
dynamics over the reporting period, characterizes the efficiency of the
Revenue from sales is understood as accounting income from ordinary
and other activities of the enterprise for the reporting period. Profit is
understood as the difference between accounting income and accrued costs
associated with the production and marketing of products.
The profit expresses the net income received by the enterprise for
the reporting period, and is recognized after the sale of the product, and not
at the time of receipt of proceeds from sales. Costs attributed to the cost of
production, are also recognized only after its implementation. The amount of
profit is subject to manipulation using accounting methods, with the help of
which it is possible to overestimate or lower the profit indicator of the
For these reasons, the profit reflects only the increment of the
advanced value, which characterizes the efficiency of the enterprise
management, but does not reflect the actual availability of funds available for
At the same time, the company needs not only to have free cash to
pay off current liabilities, but also to keep records of their real income and
expenditure. Free cash is the most limited resource, especially in a transition
economy, and the financial condition of an enterprise largely depends on their
availability in sufficient volume and effective use. The analysis of cash flows
based on the cash flow statement is conducted in a straightforward manner and
includes a vertical, horizontal analysis of the net cash flow from current,
investment and financial activities.
One of the main problems facing any business is the proper planning
of cash flows. Forecasting and planning of cash flows is a less studied problem
in financial science, which is closely connected both with strategic planning
of enterprise development in the future and with the implementation of
long-term financial planning.
The plan of receipt and spending of funds is developed for the
coming year in a monthly section in order to ensure that the seasonal
fluctuations of the company's cash flows are taken into account. It is compiled
for individual types of economic activity and for the enterprise as a whole.
Given that a number of the initial prerequisites for the development of this
plan are poorly predictable, it is usually drawn up in variants -
"optimistic", "realistic" and "pessimistic". In
addition, the development of this plan has a multivariate nature and the
methods used to calculate its individual indicators.
The main purpose of developing a plan for the receipt and
expenditure of funds is to forecast the gross and net cash flows of the
enterprise in time in terms of certain types of its economic activities and
ensure constant solvency at all stages of the planning period.
The plan of receipt and spending of funds is developed at the
enterprise in such a sequence.
Forecasting the receipt and expenditure of cash on the operating
activities of the enterprise is carried out in two main ways:
- based on the planned volume of sales;
- based on the planned target amount of net profit .
When forecasting the receipt and expenditure of cash on the
operating activities of an enterprise based on the planned volume of product
sales, the calculation of individual plan indicators is carried out in this
Forecasting the receipt and expenditure of cash on the investment
activity of the enterprise is carried out by the direct account method. The
bases for the implementation of these calculations are:
- a real investment program that characterizes the volume of
investment of funds in the context of certain investment projects being
implemented or planned for implementation;
- the portfolio of long-term financial investments projected to the
- estimated amount of cash inflow from the sale of fixed assets and
intangible assets. The basis for this calculation should be the plan for their
- projected size of investment profit (only for long-term financial
investments - dividends and interest receivable).
Forecasting the receipt and expenditure of funds for financial
activities is carried out using the direct account method based on the
enterprise's need for external financing, determined by its individual
elements. The bases for the implementation of these calculations are:
- the planned volume of additional issue of own shares or attraction
of additional share capital. The cash flow plan includes only that part of the
additional issue of shares that can be realized in a specific future period;
- the planned volume of attracting long-term and short-term
financial loans, and loans in all their forms (attraction and servicing of
commodity credit, as well as short-term internal accounts payable is reflected
in cash flows on operating activities);
- the amount of expected receipt of funds by way of gratuitous
dedicated financing. These indicators are included in the plan on the basis of
the approved state budget or corresponding budgets of other state and non-state
bodies (funds, associations and the like);
- the amount of the main debt for the payment in the planned period
for long-term and short-term financial loans, and loans. Calculation of these
indicators is carried out on the basis of specific contracts of the enterprise
with banks or other financial.
The results of the calculation of the receipt and expenditure of
funds for the main types of activities and for the enterprise as a whole are
made in the form of a planned table, which is summarized in the context of the
positions specified in the standard for the statement of cash flows of the
enterprise for operating, investment and financial activities and broken down
by months, Quarters and for the coming year as a whole.
The forecast of cash flows is to determine the possible sources of
income and directions for spending money. Proceeding from the fact that most of
the indicators are difficult to forecast with great accuracy, cash flow
planning is reduced to drawing up a budget for cash in the forecast period,
taking into account only the most important flow parameters: sales volume,
sales revenue for cash, and forecast of accounts payable. The forecast is
carried out for a certain period:
- for half a year,
- year by quarter;
- for the quarter,
- broken down by month;
- for a month with breakdown by decade .
A more detailed calculation assumes the classification of accounts
receivable by maturity, which can be performed by accumulating statistical data
on analysis of repayment of receivables for previous quarters. At the first
stage, the average share of debtors with a maturity of up to 30 days, up to 0
days, up to 90 days is established.
In the presence of other receipts of funds (from other sales,
financial transactions), their forecasted valuation is performed by the direct
account method: the amount received is added to the volume of cash receipts
from the sale of products for a certain period.
In the second stage, outflow of funds is established. Its main
component is the repayment of short-term accounts payable. It is assumed that
the enterprise pays the accounts of suppliers in a timely manner, although it
may delay payment. Deferred accounts payable act as an additional source of
short-term financing. Other ways of spending money include staff pay,
overheads, taxes, capital investments, interest, and dividends.
In the third stage, the net cash flow (positive or negative balance)
is determined by comparing projected cash receipts and payments.
At the last stage, there is a general need for short-term financing
(in a bank loan).
The economic activity of any enterprise is inextricably linked with
the movement of money. Monetary funds serve almost all aspects of the
operating, investment and financial activities of the enterprise. The
continuous process of cash flow over time is a cash flow that is figuratively
compared to a system of "financial circulation" that ensures the
viability of the organization.
The relevance of the topic is due to the fact that the results of
the enterprise's core (operating) activity, the degree of its financial
stability and solvency, the competitive advantages necessary for current and
future development depend on the completeness and timeliness of the supply,
production and marketing of products. Therefore, knowledge and ability to use
modern methods of analyzing cash flows and ensuring their effective management,
guarantee the success of any enterprise.
1. Melnikov V.D. Osnovy finansov [Fundamentals of
Finance]. - Almaty: LLP "Izdatelstvo LEM", 2012. - 568 p.
2. Lechevitsyna L.N. Ekonomika predriyatiya [Enterprise
Economy]. - Rostov-on-Don: "Feniks", 2012. - 54 p.
3. Finansovy i ekonomichesky slovar [Financial
and Economic Dictionary], comp. S.A. Svyatov, A.E. Lomeiko, V.M. Utyish;
under the scientific editorship of Prof. A.A. Abishev. - Almaty: Ekonomika,
2013. - 703 p.
4. Bernstein L.A. Analiz finansovoy otchetnosti [Analysis
of Financial Statements]. - Moscow: Finansy i Statistika, 2013 - 388 p.
5. Yekimova, K.V., Shubina Т.V.
Finansy organizatsiy (predriyatiy): uchebnik [Finances of Organizations
(Enterprises): Textbook]. - M.: SRC INFRA-M, 2013. - 375 p.
6. Arystanbaeva S.S. Problemy formirovaniya i ispolzovaniya
finansovykh resursov [Problems of Formation and Use of Financial Resources].
- Almaty. 2012. - 140 p.
7. Keulimzhayev K. Finansovaya otchetnost [Financial
Accounting]. - Almaty: Ekonomika, 2013. - 474 p.
Table of contents: The Kazakh-American Free University Academic Journal №9 - 2017