Notes On Cash Flow Management

1.1. Review principles of estimating project cash flows. Suggested reading: Ch. 9 “Capital Budgeting and Cash Flow Analysis” in “Contemporary Financial Management”, 11th ed. by Moyer, McGuigan, and Kretlow.

Predicting and managing cash flow. To manage cash flow effectively you must keep a watchful eye on finances. So the business owner should be forecasting and revising their cash flow forecast on a daily basis however, if the finances of the business are more stable then forecasting cash flow weekly or monthly is enough. Cash flow is so important to a business because identity’s shortfalls in cash balances in advance.

1. Cash that comes into or goes out of a person's or company's account. Cash flow can come from any number of sources and is crucial for a business' continued operation and a person's continued survival. Cash inflow may come from wages, salary, sales, loans, revenue from operations, or even personal gifts. Cash outflow usually comes from expenses and investments. It is crucially important to maintain a positive net cash flow insofar as

The cash flow statement is an important financial indicator of a company 's short-term viability. The report describes where the entity 's cash is generated from and how it is spent over a certain designated period of time.

Imagine you are John Olson, an energy analyst for Merrill Lynch. Your boss, Donald Sanders, shows you a handwritten note from one of Merrill’s largest customers. It reads in part, ' 'Don -- John Olson has been wrong about … (our company) … for over 10 years and is still wrong … Ken. ' ' Merrill subsequently fired Olson because he refused to endorse the customer’s exaggerated profit claims.

Cash flows are very simplistic. One can think of it as the income and outgo of one’s financial success and liabilities. Merriam-Webster defines cash flows as,” the movement of money in and out of a business.” One can also consider and apply this to their personal finances. Thinking on things such as, “How much money is made?” and “How much money is spent?” According to Richard and Anna Linzer (2008), they describe the cash flow concept as,” Cash flow thinking involves focusing on the arrival of revenues and the departure of expenditures that occur during an institution’s fiscal year (3).” Again, making this concept personal, an individual can break this down to how much of a paycheck will come in and how much money does one need to pay out for bills and other expenditures during that pay period or fiscal year. To be able establish literacy of one’s personal finances, there must be an understanding of the liquidity of funds such as cash flows. Ultimately, understanding cash flows helps to motivate a budget.

Therefore, the adaptation of having a statement of cash flows becomes essential to any business or organization. With the adaption of such a system personnel such as stakeholders become essential. Stakeholders are a key role personnel when it comes to motivating the employees, acquiring resources to assist on the final decision or final project, provide a valuable input, and ultimately build trust with to increase consensus at the final decision making. The

Cash flow forecasts are a powerful management tool to help identify future deficits or surpluses in liquidity. The cash flow forecast shows the total expected outflows and inflows during a given period; i.e. a year. It is vitally important that this budget is prepared so the organization is aware of shortages and surpluses during the year. These can help the business spot cash problems and cash opportunities. A known cash shortage can be planned for and resolved proactively verses reactively. It would be wrong to assume that if the organization is in surplus that it does not have a problem. Idle cash means the opportunity to earn interest or

Cash inflow and outflow is a litmus test of a company’s performance during a specific time frame. Cash is the lifeline of the company and the availability or lack of cash is a clear indication of a successful or failing business for most financial analysts, investors and company management. The statement of cash flow is the means used by many to view the cash movement within an organization. According to Epstein (2014), “The purpose of the statement of cash flows is to determine how cash flowed into and out of the company during a certain period of time” (p.156). This management tool can assist executives, financial managers and stock holders identify the organization’s

Cash flow forecasts aim to predict future financial liquidity over a specific period of time. Generally, forecasts are made using about five years’ worth of historical data. Getting started with creating cash flow forecasts may want to consider starting with short-term forecasts. Short-term cash flow forecasting is based on actual cash receipt and disbursement data (Lohrey, n.d). With that being said, I would go back to the last five years to see how the cash budget has transformed over the years to guide me on what to expect for the upcoming fiscal year. I will work on cash inflows and outflows for the specified years to accurately analyze what was undergone in the operating budget. Again, in order to accomplish this, I may utilize some of the personnel indicated and departments as well. After I collect all the necessary information from the important personnel and departments that available for the past five-year budget, I will evaluate them accordingly and with a careful attention given to cash inflow and outflows. Initially, I will insist on forecasting cash

“Cash-flow projection statements are about the state of future cash flows, which means they require forecasts. This translates into multiple forecasts—sales forecasts, forecasts of expenses, forecasts for necessary investments, and forecasts for a business’s financing requirements.” (Cadden and Lueder, 2015.) Using a cash flow projection statement to forecast future inflows and outflows is especially vital when managing the finances of a small business. It allows for business owners to prepare and plan for a future fiscal period. To come up with an accurate cash flow forecast, the business owner should closely examine and analyze the company 's historic cash flow statement, meaning expenditures and sales. By examining the statement it can be predicted when there will be an increase sales, and when there may be a dip. This allows the business owner to be prepared with the correct amount of inventory, and to plan for the financial ups and downs.

When a statement of cash flow is viewed along with the other financial statements, it provides information that enables users to evaluate the changes in net assets of an enterprise, its financial structure including its liquidity and solvency and its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities.

Cash-flow budget serves multiple purposes, the cash flow budget provides an overview of the cash inflows and outflows during a period. The first step in the construction process is identifying and timing the cash inflow. The principal purpose of the statement of cash flows is to provide relevant information about a company 's cash receipts and cash payments during a particular accounting period. Which is useful for answering questions such as How much cash did the firm generate from operations? • How did the firm finance fixed capital expenditures? • How much new debt did the firm add? • Was the cash from operations sufficient to finance fixed asset purchases. (Kuratko, D. F. (2009). Entrepreneurship: Theory, process, practice (8th ed.). Mason, Ohio: Cengage.) It should be remembered that entrepreneurs make assumptions to explain how numbers are derived, and they correlate these assumptions with information presented in other parts of the business operations. The set of assumptions on which projections are based should be clearly and precisely presented; without these assumptions, numbers will have little

Cash Flow is composed of revenue or expense streams that change cash accounts over a specified period. The "statement of cash flows" showing the amount of cash generated and used by a company during the period is calculated by adding noncash charges (such as depreciation) to net income after taxes. Changes in cash are usually derived from one of three activities - financing, operations or investing.

Proper cash management and efficient short-term financing are both important and beneficial to a company in order to maintain a competitive market share, which will increase profit potential and shareholder value through rising stock. Cash management can be used to lower or eliminate idle cash balances that do not earn revenue, using the freed up cash as sources for short-term financing through interest building securities. Short-term financing allows a company to secure needed funds in order to meet production needs and gain maximum profitability.