R.E. Janshanlo
ANALYSIS OF CASH FLOWS
OF THE ORGANIZATION
The manual
Almaty
2016
Janshanlo R.E.
Analysis of cash flows of the organization: The manual. - Almaty:
The manual is devoted to consideration of an actual problem of financial management - to the analysis of cash flows of the organization. In it theoretical bases and
methodological aspects of an assessment and the analysis of cash flows are briefly
stated. Thus questions of carrying out the horizontal, vertical and factorial analysis
are followed by practical examples.
It is intended for bachelors, undergraduates, doctoral candidates of PhD, listeners
of system of training of professional accountants, auditors and analysts.
Reviewers: Dyusembayev K.Sh. - Doctor of Economics, professor;
Baydildina A.M. - Doctor of Economics, professor;
Ibrishev N.N. - Doctor of Economics, professor.
Alimbekova G.A. (English) - Doctoral candidate (PhD).
It is recommended the Academic council
Higher School of Economics and business
of the Kazakh national university of al-Farabi
(the protocol from _______________ 2016 № __ )
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CONTENTS
SYMBOLS ………………………………………………………………………. 4
PREFACE ……………………………………………………………………….. 7
1. THEORY OF THE ANALYSIS OF CASH FLOWS
1.1. Essence and classification of cash flows ……………………………………. 9
1.2. Methods and indicators of the analysis of cash flows ……………………... 16
1.3. Receptions and analysis stages of cash flows ……………………………... 20
Control questions ………………………………………………………………. 24
Tests ……………………………………………………………………………. 25
2. METHODS OF AN ASSESSMENT OF CASH FLOWS
2.1. Direct method of an assessment of cash flows ……………………………. 28
2.2. Indirect method of an assessment of cash flows …………………………... 34
2.3. Method of a liquid cash flow ……………………………………………… 42
Control questions ………………………………………………………………. 46
Tests ……………………………………………………………………………. 47
3. ANALYSIS OF ABSOLUTE MEASURES OF CASH FLOWS
3.1. Horizontal analysis of cash flows …………………………………………. 50
3.2. Vertical analysis of cash flows ……………………………………………. 53
3.3. Matrix method of the analysis of cash flows ……………………………… 55
Control questions ………………………………………………………………. 60
Tests ……………………………………………………………………………. 60
4. COEFFICIENT ANALYSIS OF CASH FLOWS
4.1. Analysis of liquidity of cash flows ………………………………………... 63
4.2. Analysis of efficiency of cash flows ………………………………………. 65
4.3. Factorial analysis of cash flows …………………………………………… 66
Control questions ………………………………………………………………. 70
Tests ……………………………………………………………………………. 70
5. INTEGRATED ANALYSIS OF CASH FLOWS
5.1. Du Pont system analysis of cash flows …….……………………………… 73
5.2. SWOT analysis system of cash flows ……………………………………... 74
5.3. Object-oriented analysis of cash flows ……………………………………. 84
Control questions ………………………………………………………………. 86
Tests ……………………………………………………………………………. 87
LIST OF REFERENCES ………………………………………………………. 90
APPENDICES …………………………………………………………………. 91
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SYMBOLS
A - the indicator reflecting quality of realization of a basic purpose of system (for
example, a certain system quality or emergent properties);
Aas - average size of assets;
As-t - short-term assets;
As-t.n - short-term assets in the period of n;
As-t.n-1 - short-term assets during the previous period;
AEm.i - article of an expenditure of money;
ARm.i - article of receipt of money;
Сс - compensation with charges;
Cl.cf - coefficient of liquidity of a cash flow;
Cas - coefficient of absolute solvency;
Ccs - coefficient of the current solvency;
Cis - coefficient of intermediate solvency;
Csm - coefficient of security with money;
Cs.cf.pur - coefficient of sufficiency of a pure cash flow;
Ce.cf.pur - coefficient of efficiency of a pure cash flow;
Cp.cf.pos - coefficient of profitability of a positive cash flow;
Cp.cf.neg - coefficient of profitability of a negative cash flow;
Cp.cf.pur - coefficient of profitability of a pure cash flow;
Cpm.as - coefficient of profitability of average size of money;
Ctm - coefficient of turnover of money;
Ctm.as - coefficient of turnover of average size of money;
Cp.ps - coefficient of profitability of product sales;
CFpur - a pure cash flow;
CFpur.oa - pure cash flow from operating activities;
CFpur.ia - pure cash flow from investment activity;
CFpur.fa - pure cash flow from financial activity;
CFpos - a positive cash flow;
CFneg - a negative cash flow;
CFpos.oa - a positive cash flow from operating activities;
CFneg.oa - a negative cash flow from operating activities;
CLl-t.1 - the long-term credits and loans for the end of the settlement period;
CLs-t.1 - the short-term credits and loans for the end of the settlement period;
CLl-t.0 - the long-term credits and loans for the beginning of the settlement period;
CLs-t.0 - the short-term credits and loans for the beginning of the settlement period;
CSap - calculations with suppliers (the accounts payable extinguished in the reporting period);
Dpo - the dividends paid to owners of the organization for the period;
DFA - depreciation of fixed assets;
EPa - economic profitability of assets, %;
(EPa - rk.av) - differential of financial leverage;
FIs-t - the sum of short-term financial investments;
LC - the loan capital;
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(LC / OC) - debt coefficient (financial dependence);
M - the sum of money;
M0 - money for the beginning of the settlement period;
M1 - money for the end of the settlement period;
Мa - the actual cash flow;
Mar - arrived money for the studied period;
Mas - the average size of money;
Mbeg - the rest of money for the beginning of the analyzed period;
Mend - the rest of money for the end of the analyzed period;
Mn - money in the period of n;
Mn-1 - money during the previous period;
Mn.b - a net balance of money for the period;
Mop.oa - other payments of money in the course of operating activities;
Mor.oa - other receipts of money in the course of operating activities;
Mpa.ii - the money paid for acquisition of inventory items – raw materials, materials and semi-finished products at suppliers;
Mp.s - the money received from product sales;
Mrd - sums of monetary receipts from debtors;
Msp - it is spent money for the studied period;
MI - material inputs;
MS - the sum of the material inputs included in product cost;
NP - net profit;
Os-t - the sum of short-term obligations;
OC - own capital;
OCas - average size of own capital;
Р - proceeds from sales of production;
PFRr - article (look) of reduction of pure financial result;
PFRi - article (look) of increase in pure financial result;
PM - the volume of purchases of materials for the reporting period;
PPCLl.s-t - the sum of payments of a principal debt on the long and short-term
credits and loans;
Rs-t - the sum of short-term receivables;
RIT - a rate of income tax in points;
SPa-m.p - the salary paid to the administrative and managerial personnel;
SPo.p - the salary paid to operation personnel;
TPb - the tax payments transferred into the budget;
TPo-b.f - the tax payments listed in off-budget funds;
ΔAP - a gain (decrease) of accounts payable;
ΔAR - a gain (decrease) of accounts receivable;
ΔCLl-t - change of the sum of the long-term credits and loans;
ΔCLs-t - change of the sum of the short-term credits and loans;
ΔIA - change of the sum of intangible assets;
ΔICI - change of the sum of incomplete capital investments;
ΔFA - change of the sum of fixed assets;
ΔFIl-t - change of the sum of long-term financial investments;
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ΔFIs-t - change of the sum of short-term financial investments;
ΔMS - a gain (decrease) of material stocks;
ΔGSIIap.s-t - the sum of a gain of stocks of inventory items as a part of short-term
assets;
ΔOAl-t - change of the sum of other long-term assets;
ΔOC - change of the sum of own capital;
rcpt - a rate of corporate income tax (unit share);
rk.av - an average interest rate for the credit;
(1 - rcpt) - tax proofreader of financial leverage;
a1, a2, a3,…, an - parameters on which this system quality depends;
х1 - salary capacity;
х2 - material capacity;
х3 - depreciation capacity;
х4 - turnover of assets;
х5 - share of the average rest of money in the total amount of a positive cash flow;
х6 - share of the average rest of money in the total amount of assets.
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PREFACE
The majority of types of economic operations of the organization in this or that
form is connected with receipt or leaving of money. For implementation of the expenses the organization has to provide adequate inflow of money supply in a type of
income from realization of goods and services, receipt of dividends on the invested
capital, receiving temporary loan money, etc.
Money is a limited resource therefore creation in the organizations of the mechanism of effective management of their movement which would promote ensuring
economic processes with the necessary level of cash flows and maintenance of the
optimum rest of money by regulation of balance of their receipt and an expenditure is
important. In the conditions of constantly changing economic situation (external and
internal) creation of such mechanism requires existence of analytical information on
cash flows of the organization and conditions of their formation. And for ensuring
elasticity of administrative system, that is its ability quickly to react to the happening
changes, to focus limited resources on the vital, priority directions more actual are results not of the current, but expected analysis allowing to control not simply, and to
expect a situation.
However the majority of the offered methodical development according to cash
flows of the organization have retrospective character. Besides direct and indirect
methods which mainly are considered in economic literature, are applied separately
from each other. It doesn't allow to reveal joint influence of straight lines and indirect
factors on cash flows of the organization, and also on a deviation of a net balance of
the money from pure financial result received by the organization for the same period
of time. That, in turn, doesn't give the chance to bring analytical research to concrete
actions, and, therefore, to use these methods when forecasting cash flows, at determination of their possible volume in case of adoption of this or that administrative decision.
In a basis of calculations the percentage ratio of the indicators defining cash flow
of the organization which developed during the previous periods taking into account
their possible changes in the future is, as a rule, put. Thus in most cases the main attention is given to questions of collection of receivables and repayment of accounts
payable regarding calculations with suppliers and contractors, as to the most essential
components of cash flows. Other indicators of sources and the directions of use of
money admit difficult predictable and are practically not considered.
Therefore one of problems of market economy is maintenance of balance between
the high level of profitability of work of the organization and its sufficient solvency
today. The solution of this task first of all is based on skillful management of cash
flows. Management of cash flows is of particular importance during formation of
economy when in the conditions of the unstable economic environment, absence or
not the correct management of money can lead to financial crash even the profitable
organization. The successful solution of the financial problems arising in the organizations in many respects depends on creation and use of a certain control system of
money which main components is accurately adjusted system of the account, implementation of the analysis and advance financial planning of cash flows.
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The analysis of the movement of cash flows gives the chance to draw more valid
conclusions on in what volume and from what sources the money and what main directions of their use which came to the organization were received; whether the organization for the short-term obligations is capable to answer; whether enough own
means of the organization for implementation of investment activity; than divergences of size of the got profit and existence of money, etc. speak.
The purpose of this manual – to consider the main questions of an assessment and
the analysis of cash flows of the organization.
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1. THEORY OF THE ANALYSIS OF CASH FLOWS
1.1. Essence and classification of cash flows
Many economists agree in opinion that money in the conditions of market economy acts as the most limited resource therefore very important is an achievement of
the maximum economic effect of operations with them. Besides funds of the organization represent the only type of resources which directly and with the minimum expenses is transformed to other types of the resources necessary for normal process of
economic activity. However money in itself is non-profitable assets. Their commercial usefulness and efficiency is shown when they are involved in economic circulation and are in the movement.
In the middle of the XIX century scientists paid attention to so-called paradox of
profit which essence was as follows: the organization has no money, but there is a
profit, or there is money, but there is no profit. The limit case of the called paradox
when the organization which showed profit in the report was declared bankrupt became possible even. The need for an economic explanation of similar situations defined need of allocation for the scientific device of the concept «cash flow» as independent economic category. Historically it occurred relatively recently – only in the
first half of the XX century. The concept of cash flows as «cash flow» for the first
time appeared in economic literature of the USA after World War II. Now this term
having an Anglo-Saxon origin, gained the international recognition and is in free use
in many countries.
In economic literature (both foreign, and Kazakhstan) the economic essence of
cash flows of the organizations is treated differently that proves that the cash flow as
category of a market economy is a difficult multidimensional phenomenon:
Cash flow
organizations
- a difference between all money received and paid by the organization for a
certain period
- inflow and outflow of money
- set distributed on separate intervals of the considered period of time of receipts and payments of the money generated by its economic activity which
movement is connected with factors of time, risk and liquidity
The gain of cash flows arises from a gross revenue of the organization which creates prerequisites for expanded reproduction. In the course of a circulation the capital
passes from a monetary form in productive, commodity and again into the monetary.
In each time point separate parts of the capital are only in one form.
From here it is possible to conclude that the cash flow represents cash flow in the
form of their receipt and an expenditure. Receipt (inflow) of money is called as a positive cash flow, an expense (outflow) of money - a negative cash flow. The difference
between positive and negative cash flows on each kind of activity or on economic activity of the organization in general is called as a pure cash flow.
The actual change of free funds of the organization for a certain interval of the
analysis carries the name the actual cash flow. The actual cash flow pays off on the
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basis of data on the size of the funds of the organization reflected in the balance sheet
(a line 010 «Money and their equivalents»).
The difference between a pure and actual cash flow represents non-productive
consumption.
Financial wellbeing of the organization in many respects depends on inflow of the
money providing a covering of its obligations. The lack of money can negatively be
reflected in activity of the organization and result in insolvency, reduction of the liquidity, un profitability and the termination of functioning. Surplus of money can be
familiar that the organization sustains losses.
The reason of these losses can be connected both with inflation and depreciation
of money, and with the missed possibility of their favorable placement and obtaining
the additional income. Anyway the analysis of cash flows will allow to establish a real financial position of the organization.
Cash flows can be classified by types of economic activity. According to the international standards of the account allocate such types of cash flows:
1. On scales of service of economic process allocate the following types of cash
flows:
• a cash flow on the organization in general – the most aggregated type of a cash
flow which accumulates all types of the cash flows serving economic process of the
organization in general;
• a cash flow by separate types of economic activity of the organization – result of
differentiation of a cumulative cash flow of the organization in a section of separate
types of its economic activity;
• the cash flow – determines it by separate structural divisions (the centers of responsibility) as independent object of management in system of organizational and
economic construction;
• the cash flow on separate economic operations – is considered as primary object
of independent management.
2. On kinds of activity allocate the following types of cash flows:
• operating activities. Inflow of money: proceeds from sales of goods and services, receipts of receivables, from sale of material values and barter; advance payments of buyers. Outflow of money: payments to suppliers, payment of a salary,
payments in the budget and off-budget funds, payment of percent for the credit, repayment of accounts payable;
• investment activity. Inflow of money: realization of fixed assets, intangible assets, complete construction; receipt of funds from realization of long-term assets; dividends, percent from long-term financial investments. Outflow of money: capital investments on production development, long-term financial investments;
• financial activity. Inflow of money: short-term credits and loans; long-term credits and loans; receipts from implementation of bills and payment by their debtors,
from issue of shares; target financing. Outflow of money: repayment of short-term
obligations, long-term credits and loans; payment of dividends.
The sum of cash flows in the considered higher than three directions of economic
activity of the organization forms a pure cash flow. The size of a pure cash flow can
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be considered as potential amount of money which the organization for results of the
activity has to have.
3. On an orientation of cash flow allocate two main types of cash flows:
1) the positive – characterizing set of receipts of money in the organization from
all types of economic operations (in quality of analog of this term the term «inflow of
money» is used);
2) the negative – defines set of payments of money by the organization in the
course of implementation of all types of economic operations (as analog of this term
the term «outflow of money» is used).
4. On a method of calculation of volume allocate the following types of cash flows
of the organization:
• the gross – characterizes all set of receipts or an expenditure of money in the
considered time period in a section of its separate intervals;
• the pure – defines a difference between positive and negative cash flows (between receipt and an expenditure of money) in the considered time period in a section
of its separate intervals. The pure cash flow is the most important result of financial
activity of the organization in many respects defining financial balance and rates of
increase of its market value.
Calculation of a pure cash flow for the organization in general, to its separate
structural divisions (the centers of responsibility), different types of economic activity
or separate economic operations is carried out on the following formula:
CFpur = CFpos - CFneg.
5. On the level of sufficiency of volume allocate the following types of monetary
streams of the organization:
• the superfluous – characterizes such cash flow at which receipts of money significantly exceed real need of the organization for their purposeful expenditure. The
certificate of an excess cash flow is the high positive size of the pure cash flow which
isn't used in the course of implementation of financial and economic activity of the
organization;
• the scarce – defines such cash flow at which receipts of money are significantly
lower than real needs of the organization for their purposeful expenditure. Even at
positive value of the sum of a pure cash flow it can be characterized as scarce if this
sum doesn't provide planned need for an expenditure of money in all provided directions of financial and economic activity of the organization. Negative value of the
sum of a pure cash flow automatically does this stream scarce.
6. On an assessment method in time allocate the following types of cash flows:
• the real – characterizes a cash flow of the organization as its uniform comparable size specified at cost to a present situation of time;
• the future – defines a cash flow of the organization as its uniform comparable
size specified at cost to a concrete forthcoming time point.
7. On a formation continuity in the considered period distinguish the following
types of cash flows of the organization:
• the regular – characterizes a stream of receipt or an expenditure of money on
separate financial and economic activities (cash flows of one look) which in the considered period of time is carried out constantly on separate intervals of this period;
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• the discrete - defines the receipt or an expenditure of money connected with implementation of single financial and economic activities of the organization in the
considered time period.
8. On stability of time intervals of formation regular cash flows are characterized
by the following types:
• the regular cash flow with uniform time intervals within the considered period –
has character of annuity;
• a regular cash flow with uneven temporary intervals within the considered period – the schedule of leasing payments for the rented property with the uneven intervals of time of their implementation coordinated by the parties throughout the term of
rent of an asset.
9. On liquidity or change of a pure credit position of the organization during the
certain period allocate the following types of cash flows:
• the liquid – is one of indicators by means of which estimate change of a financial position of the organization in time and characterize change in a pure credit position of the organization during the period. Thus the pure credit position is a positive
difference between the sum of the credits obtained by the organization, and size of
money;
• the illiquid – characterizes on negative change in a pure credit position of the organization during the period. Thus understand a negative difference between the sum
of the credits obtained by the organization, and size of money as a pure credit position.
10. On features of alternation of inflows and outflows in time cash flows can be:
- the relevant – in them the stream with the sign «minus» changes on a stream
with the sign «plus» once. Relevant cash flows are characteristic for standard, typical
and simplest investment projects in which behind a stage of initial investment of the
capital, that is outflow of money, long receipts, that is inflow of money follow;
- the irrelevant – for them the situation when outflow and inflow of the capital alternate is peculiar.
11. On nature of balance cash flows subdivide on:
- the softly balanced - is based on balance of a scarce stream in the long-term period when outside one fiscal year deficiency of a cash flow from investment activity
is overcome and streams from operating and financial activities are subordinated to it.
This type of balance is connected with an investment orientation of development of
the organization;
- the rigidly balanced - is based on balance of a scarce stream in the short-term
period on system «accelerations of attraction of money – delays of payments of money» when within one fiscal year deficiency of a stream from operating activities as
primary activity is overcome and to it are subordinated short-term financial and investment to activity. This type of balance is connected with maintenance of the current financial stability, solvency and liquidity, focused on short investments of the
speculative nature.
12. On riskiness degree cash flows happen:
- the high risk - represent a cash flow of innovative projects, especially in an initial stage of their life cycle that is connected with risky investments into innovations.
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Thus the highest riskiness of streams is observed at financial and investment activity
before passing of a point of payback or return of investments of the project, and
smaller riskiness – at operational;
- the low-risky - exist at traditional kinds of activity of the organization, especially
in the period of peak of life cycle that is connected with stable generation of the high
income during «removal of cream in the market». Thus low riskiness of cash flows is
observed from operating activities.
13. On predictability allocate the following types of cash flows:
• the predicted - when activity of the organization is carried out in rather stable financial and economic and political environment, many external negative factors are
neutralized, and internal factors are predicted on stories of a sustainable development
within representative statistical selections, that is systematic risks are neutralized by
government policy, and technical internal risks are predicted with high degree of
probability;
• not predicted - when activity of the organization is carried out in the unstable financial and economic and political environment, many external negative factors
prove as uncertainty, and internal factors are predicted because of not representative
statistical selections by expert methods, that is systematic risks have the high level of
uncertainty and are almost not predicted because of crisis of government stabilization
policy, and technical internal risks are predicted with low degree of probability.
14. On controllability cash flows can be:
- the operated - represent domination of those monetary inflows and outflows
which the organization can operate, carrying out more active operational and passive
financial and investment activity so that to develop on the basis of self-sufficiency
and self-financing, that is financially independent and independent development of
the organization at the expense of the internal reserves;
- the uncontrollable - represent domination of those monetary inflows and outflows which the organization can't operate, carrying out active financial and investment activity generally on the basis of large-scale external loans at scanty own means
and internal reserves.
15. On controllability cash flows subdivide on:
- the controlled - the stream, inflows and which outflows give in to forecasting
and management which balance is formed at the most insignificant deviation from the
planned level, that is «the plan - the fact - the deviation» is minimum by intermediate
and final financial results;
- the uncontrollable - the stream, inflows and which outflows don't give in to
forecasting and management, the balance of a stream is formed at a considerable deviation from the planned level, that is «the plan - the fact - the deviation» is maximum both on intermediate, and by final financial results.
16. Whenever possible synchronization cash flows happen:
- the synchronized - a stream at which inflows will be coordinated from time of
outflows to the temporary period taking into account seasonal and cyclic distinctions
in receipts and an expenditure of money. Thus correlation level between positive and
negative cash flows strives for +1 value;
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- not synchronized - a stream at which inflows won't be coordinated from time of
outflows to the temporary period because of essential seasonal and cyclic distinctions
in receipts and an expenditure of money. Thus there is a considerable decrease in level of correlation between positive and negative cash flows.
17. Whenever possible optimization distinguish cash flows:
• the optimized - the stream, inflows and which outflows give in to alignment and
synchronization in time, to smoothing of volumes of inflow and outflow in a section
of separate intervals of the temporary period with elimination of essential influence
of seasonal and cyclic changes in formation of streams when the average remains of
money correspond to average financial requirements of the organization;
• not optimized - the stream, inflows and which outflows don't give in to alignment and synchronization in time, volumes of inflow and outflow don't smooth out in
a section of separate intervals of the temporary period because of essential influence
of seasonal and cyclic changes in formation of streams when the average remains of
money don't correspond considerably to average financial requirements of the organization.
18. By efficiency concerning profitability indicators cash flows divide on:
- the effective - a stream which soft balance at the same time promotes profitability growth, especially in such a way that is provided to profitability of own capital the
steady growth of the organization, and indicators of financial stability and profitability improve at the same time;
- inefficient, but balanced - the stream which rigid balance occurs due to decrease
or loss of profitability, especially profitability of own capital in such a way that is
provided chronic un profitability after a covering of short-term obligations, and an
indicator of strengthening of the current financial stability, solvency, liquidities improves at the price of profitability loss.
The considered classification allows to carry out more purposefully the account,
the analysis and planning of cash flows of different types in the organization.
Both deficiency, and surplus of monetary resources negatively influence on financial position of the organization. At an excess cash flow there is a loss of real cost of
temporarily free money as a result of inflation, the part of the potential income from
not before use of money is lost, turnover of the capital as a result of idle time of money is slowed down.
Existence of an excess cash flow throughout a long time can be result of misuse of
working capital. That money worked in the organization, it is necessary to put them
into circulation for the purpose of receiving profit: to expand the production, to update fixed assets, to get new technologies, to invest in profitable projects of other
economic entities for the purpose of receiving favorable percent, ahead of schedule to
repay the loans of bank and other obligations, etc.
Deficiency of money leads to growth of arrears of the organization for the credits
to bank, suppliers, to the personnel on compensation therefore the sum of financial
expenses increases and profitability of the capital of the organization decreases. It is
possible to reduce deficiency of a cash flow due to the actions promoting acceleration
of receipt of money and delay of their payments.
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The qualitative characteristic of cash flows can be estimated by cyclic sequence of
the economic processes happening in the organization. From here cash flows of the
organization have to be considered not simply as process of receiving and payment of
money, and as passing process by the capital of the organization of certain stages of
its production and financial activity. In that case the cycle of cash flows will correspond to a circulation of economic means of the organization that is especially important at creation of the effective mechanism of management of them. Effective
management of cash flows:
- provides financial balance of the organization in the course of its development.
Rates of this development and financial stability considerably are defined by that,
how different types of cash flows are synchronized on volumes and in time. High
level of such synchronization provides essential acceleration of realization of strategic objectives of development of the organization;
- allows to reduce need of the organization for the loan capital. Actively operating cash flows, it is possible to provide more rational and economical use of own financial resources, to reduce dependence of the organization on the attracted loans;
- provides decrease in risk of insolvency.
Sources of money accumulate the organization for formation of assets necessary
for it for implementation of all types of financial and economic activity as at the expense of own income, accumulation and the capital, and due to different receipts.
Formation of cash flows is influenced by a huge number of factors which in the most
general view can be divided on internal and external that is reflected in table 1.
Table 1 - The factors influencing formation of cash flows
External factors
Environment of the commodity market
Environment of stock market
System of the taxation of the organizations
Established practices of crediting of suppliers
and buyers of production
System of implementation of settlement operations of economic entities
Availability of the financial credit
Possibility of attraction of financial resources
of gratuitous target financing
Internal factors
Life cycle of the organization
Duration of an operational cycle
Seasonality of production and realization of
goods and services
Urgency of investment programs
Depreciation policy of the organization
Coefficient of operational leverage
Financial mentality of owners and managers of
the organization
Money can come to the organizations from various sources. The most widespread
of them are:
- income from product sales;
- the receipts mobilized in the financial market (sale of shares, bonds and other
securities);
- dividends and percent on securities of other issuers;
- the venture capital (the risk investments made in new fields of activity counting
on fast payback of invested funds);
- short-term and long-term credits and loans;
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- income from realization of property;
- budgetary appropriations;
- insurance compensations and so forth.
1.2. Methods and indicators of the analysis of cash flows
Cash flows of the organization in all forms and shapes are the most important, independent object of the analysis of its financial position. It is caused by that, first,
cash flows serve carrying out economic activity of the organization; secondly, provide financial balance of the organization in the course of strategic development;
thirdly, promote increase of rhythm of operational process; fourthly, allow to reduce
need for the loan capital; fifthly, are a financial leverage for acceleration of a turn of
the capital and, at last, allow to get additional profit.
The analysis of cash flows is a definition of the moments and sizes of inflows and
outflows of monetary cash. The purpose of the analysis of cash flows of the organization is the fullest and reliable providing the interested users with information on process of formation of cash flows necessary for an assessment of their balance and efficiency.
Main objectives of the analysis of cash flows:
- assessment of dynamics and structure of sources of inflow and directions of outflow of money;
- an assessment of balance of negative and positive cash flows and determination
of their sufficiency for payments according to short-term obligations;
- studying of structure of a pure cash flow;
- assessment of turnover of money;
- studying of profitability of the organization for a pure cash flow;
- an assessment of influence of factors on proceeds from sales of production
which is the main source of receipt of money.
Object of the analysis are all turnovers of accounts of money.
The importance of such type of assets as money, according to J.M. Keynes, is defined by three main reasons:
1) conventionalism - money is used for performance of the current operations and
as between the entering and proceeding cash flows always there is a time log, the organization is compelled to hold constantly free money on the settlement account;
2) precaution - activity of the organization has no rigidly predetermined character
therefore money is necessary for performance of unforeseen payments;
3) resale - money is necessary for speculative reasons as constantly there is a nonzero probability of that possibility of favorable investment will unexpectedly be presented.
A number of special systems and methods of the analysis of the cash flows allowing to receive a complex quantitative assessment of results of their multidimensional
functioning in the organization both in a statics, and in dynamics are applied to the
solution of specific objectives of analytical research. In the theory of financial management depending on the used methods distinguish the following systems of the
16
analysis which is carried out at research of functioning of cash flows: horizontal (dynamic) analysis, vertical (structural), analysis of financial coefficients, integrated
analysis.
The greatest distribution was gained by the following systems of the integrated
analysis: Du Pont system of the analysis, system of SWOT analysis and objectoriented analysis.
Except the listed main analytical methods of the analysis of cash flows of the organization there are evidence-based receptions of the financial analysis:
• the traditional - comparison, comparison, group;
• the economic-mathematical - graphic, matrix methods, a method of linear programming, a method of the correlation and regression analysis, a method of the theory of sets, etc.;
• the heuristic – the methods based on expert estimates of experts, their intuition,
last experience.
In practice not one is usually used, but set of methods of the analysis.
Set of the indicators characterizing cash flows can be grouped in the following
blocks:
1) indicators of dynamics of cash flows;
2) indicators of quality of cash flows;
3) indicators of balance of cash flows;
4) indicators of profitability of cash flows;
5) indicators of efficiency of use of money.
Indicators of the first group are determined by kinds of activity of the organization, and also by separate sources and the directions of leaving of money. Research of
dynamics of a cash flow is a basis of forecasting of inflow and outflow of money for
the forthcoming period. When studying dynamics of cash flows it is important to
compare growth rates of positive and negative cash flows. If growth rate of inflow of
money advances rate of an expense of their outflow, the pure cash flow will have a
positive tendency of building, and vice versa. The pure cash flow characterizes economic effect of a circulation of all cash flows of the organization. The coefficient of a
gain of a pure cash flow characterizes ability of the capital in a monetary form to
provide various extent of self-increase of its cost that creates prerequisites for expansion of economic base in the subsequent periods.
Indicators of the second group estimate structure of inflow, outflow of money and
a pure cash flow. They characterize individual share of separate operations in formation of cash flows of the organization. Indicators of quality of a cash flow open the
most important components of formation of cash flows of the organization taking into
account specifics of its functioning, and also define those kinds of activity as a result
of which the main inflow of money is formed.
Indicators of the third group open compliance of inflow and outflow of money,
characterize rates of building of a pure cash flow, and also efficiency of operations on
receipt and leaving of money. Carry coefficients of sufficiency of money and a covering of outflow of money which characterize ability of the organization to pay off according to obligations due to receipt of money to indicators of this group. The solvency defined for the beginning and the end of the period is considered as result of
17
accumulation of monetary resources for performance of obligations that allows to reveal viability of the organization. The coefficients opening sufficiency of the money
arriving at the expense of internal sources (proceeds from sales of goods, services, the
capital and other assets) for a covering of all sum of payments also belong to indicators of this group. Such indicators allow to open abilities of the organization to pay
off according to the obligations at the expense of own money.
The fourth group includes profitability indicators at which calculation instead of
profit the pure cash flow which is considered as one of forms of economic effect is
used. Indicators of this block characterize efficiency of use of assets and own capital.
If it is necessary to define profitability of realization, it is necessary to use a pure cash
flow from operating activities as the income from product sales is result also the main
source of receipt of funds of this kind of activity. Profitability of realization defines a
share of a pure cash flow in the sum of inflow of money from product sales. Besides,
indicators of profitability allow to compare rates of change of a pure cash flow with
rates of change of own capital, assets, proceeds from sales of production and outflow
of money.
The fifth group included indicators of efficiency of use of money. For an assessment of efficiency of use of money define indicators of turnover and profitability of
money. Indicators of turnover of money consider as indicators of liquidity of a cash
flow which provide maintenance of constant solvency of the organization. Turnover
in days characterizes the period during which money is on accounts of the organization without the movement. Such indicator allows to determine the size of the rest of
money. In case of lack of the minimum stock of money there can be financial difficulties. To the contrary, their excessive size testifies to an irrational investment and
use of money. Indicators of profitability of money are defined by comparison of the
rest and cash flow to the received financial result or a pure cash flow in this connection it is possible to establish profitability of the rest of money, profitability of inflow
of money and profitability of outflow of money.
Indicators of profitability of money characterize, what size of a pure cash flow is
the share of one tenge of the money which is at the disposal (spent or received) to the
organization during the studied period. These indicators calculated on a pure cash
flow (net profit) need to be determined as in general by the organization, and by
kinds of activity.
The analysis of financial coefficients is based on calculation of a ratio of various
absolute measures of economic activity of the organization among themselves. In the
course of use of this system of the analysis various relative indicators characterizing
separate indicators of cash flows, and extent of their influence on the general level of
a financial position of the organization are defined.
In a control system of cash flows the greatest distribution was received by the following groups of analytical financial coefficients:
1. The coefficients characterizing the level of liquidity of monetary streams. They
characterize possibility of the organization in due time to pay off according to the financial obligations. The most important role in the course of such assessment is
played by the following indicators:
• coefficient of liquidity of a cash flow:
18
Cl.cf = CFpos / CFneg.
This coefficient shows, in what degree the gross positive cash flow of the organization provides a covering of its negative cash flow. For ensuring necessary liquidity
of a cash flow it has to matter not lower than 1 (excess 1 will generate growth of the
rest of monetary assets for the end of the considered period, that is to promote increase of coefficient of absolute solvency of the organization);
• coefficient of absolute solvency:
Cas = (M + FIs-t) / Os-t.
This coefficient shows, in what degree all short-term obligations of the organization are provided with the ready instruments of payment which are available for it for
a certain date;
• coefficient of intermediate solvency:
Cis = (M + FIs-t + Rs-t) / Os-t.
It shows, in what degree all short-term obligations of the organization can be satisfied at the expense of it′s highly liquid assets;
• coefficient of the current solvency:
Ccs = CFpos.oa / CFneg.oa.
The coefficient characterizes sufficiency of a cash flow from operating activities.
If value of coefficient of the current solvency more than 1, the organization can extinguish completely the obligations from operating activities due to excess of inflows
over outflows.
2. The coefficients characterizing the level of efficiency of cash flows. They give
the generalized characteristic of efficiency of formation of cash flows of the organization. The main of these indicators are:
• coefficient of security with money:
Csm = 365 · (Mas / CFneg.oa).
The coefficient characterizes, how many on average days the organization will be
able to work without additional inflow of money. The structure of balance of the organization admits unsatisfactory, and the organization - insolvent if the coefficient of
security with money for the end of the reporting period matters less than 0,1;
• coefficient of sufficiency of a pure cash flow:
Cs.cf.pur = CFpur / (PPCLl.s-t + ΔGSIIap.s-t + Dpo).
If value of coefficient of sufficiency of a pure cash flow is more or equally 1, it
means that the pure cash flow of the current period was sufficient for increase in cost
of long-term assets and payment of dividends;
• coefficient of efficiency of a pure cash flow:
Ce.cf.pur = CFpur / CFneg;
• coefficient of profitability of a positive cash flow:
Cp.cf.pos = NP / CFpos.
The coefficient characterizes a share of net profit in the total amount of monetary
receipts of the organization. The value of an indicator is higher, the economic activity
of the organization is more effective;
• coefficient of profitability of a negative cash flow:
Cp.cf.neg = NP / CFneg.
19
The coefficient shows the sum of the net profit falling on tenge of the cash expenditures incurred by the organization;
• coefficient of profitability of average size of money:
Cp.m.as = NP / Mas.
The coefficient shows the size of the net profit got by the organization from each
tenge of the available rest of money;
• coefficient of profitability of a pure cash flow:
Cp.cf.pur = NP / CFpur;
• coefficient of turnover of average size of money:
Ct.m.as = P / Mas.
The coefficient of turnover of money shows duration of one turn of money. The
lower, the more effective money is wrapped, the turnover cycle of money is shorter.
It is expedient to analyze the transferred coefficients in dynamics.
1.3. Receptions and analysis stages of cash flows
The analysis of cash flows is carried out on the organization in general, on main
types of its activity, on separate structural divisions. For this purpose dynamics of
volume of a positive cash flow of the organization for separate sources is considered.
Thus rates of a gain of a positive cash flow are compared with rates of a gain of outputs and product sales. The special attention is paid to studying of a ratio of attraction
of money at the expense of internal and external sources, to identification of degree
of dependence of development of the organization on external sources of financing.
To open real cash flow in the organization, to estimate synchronism of receipts
and payments, and also to coordinate the size of the received financial result to a
condition of money, it is necessary to allocate and about to analyze all directions of
receipt, and also their leaving. The directions of cash flow in all sources, as a rule,
can be considered in a section of primary activities – operational, investment and financial. Division of all activity of the organization into three independent spheres
very important in practice as good (that is close to zero) the cumulative stream can be
received for the account of elimination or compensation of a negative cash flow from
operating activities by inflow of means from realization of assets (investment activity) or attraction of the credits of bank (financial activity). In this case the size of a
cumulative stream masks real unprofitability of the organization.
The greatest distribution in modern analytical literature was gained by tools which
give the chance to establish sources and the directions of use of money, and also to
define reasons for rejection of the rest of the money from pure financial result received by the organization for the reporting period of time.
To receive the answer to a question of sources and the directions of use of money
«Receipt of money for the studied period» and «Leaving of money for the studied period» is possible by specification of indicators». At formalization of interrelation between the called indicators and their composed the data provided by the report on
cash flow are considered. Basic formulas for carrying out research of sources of receipts and the directions of use of money have an appearance:
20
n
Mar = ∑ARm.i;.
i=1
n
Msp = ∑AEm.i,
i=1
In the analysis of sources and the directions of use of money their structure is established, dynamics of volume of the arrived and used money in general and in a section of each composed is considered. For an assessment of dynamics the absolute deviation, growth rate and rate of a gain is defined. At the same time the specific weight
of each source and the direction of use in the total amount of the arrived and used
money, for the purpose of identification more essential and considerably the cash
flows which affected volume pays off.
Indicators of sources and the directions of use of funds of the organization reflect
the factors which are directly defining a closing balance and a net balance of these
means. A net balance of money for the period – an indicator in number equal to the
size of a pure cash flow or difference of receipt and leaving of money, or a difference
of the remains of money for the beginning and the end of the period:
Mn.b = Mend - Mbeg = CFpur,,
Interrelations of cash flows of the organization with the remains of money have
the following appearance:
n
n
Mend = Mbeg + ∑ARm.i - ∑AEm.i;
i=1
n
i=1
n
Mn.b = ∑ARm.i - ∑AEm.ii.
i=1
i=1
The cash flows connected with changes of short-term assets are defined as a difference of data of the aggregated balance on the previous and current intervals of the
analysis. Thus,
As-t = As-t.n-1 - As-t.n,
Calculation of the cash flows connected with change of short-term assets is made
on each of their elements.
The element of short-term assets considered separately is money. The change of
size of free money calculated on the basis of data of balance carries the name of the
actual cash flow. This size shows, on how many the sum of the money which is at the
disposal of the organization increased in this period of the analysis (or I decreased).
Calculation of this indicator is made according to the aggregated balance on the following formula:
Мa = Mn - Mn-1,
For complex research of the factors rendering on monetary streams of the organization and consequently on the final and pure remains of money direct and indirect
influence it is necessary to use formulas:
n
n
m
p
Mend = Mbeg + ∑ARm.i - ∑AEm.i + ∑PFRr · RIT - ∑ PFRi · RIT;
i=1
n
i=1
n
k=1
m
t=1
p
Mn.b = ∑ARm.i - ∑AEm.i + ∑PFRr · RIT - ∑PFRi · RIT.
21
i=1
i=1
k=1
t=1
As cash flows are characterized by essential unevenness of receipts and payments
of money in a section of separate time intervals in the studied period, the assessment
not simply of a ratio of the arrived and spent money, and their movement on certain
periods of time is actual.
However determination of balance of inflow and outflow of money on volume
and on time within the subsequent analysis with use only of reporting information is
impossible. Attraction of information containing in registers of accounting and economic and legal documents is required.
During the analysis it is necessary to count indicators of structure of receipts and
payments on kinds of activity, and also dynamics indicators (rates of a gain) of receipts and payments. Estimating pure cash flows on kinds of activity it must be kept
in mind the following:
- the pure cash flow from operating activities has to be positive. The positive
cash flow from operating activities is an evidence of successful activity of the organization and possibility of further development at the expense of own means;
- the pure cash flow from investment activity has to be negative (i.e. payments
have to exceed receipts; as investment activity is connected with acquisition and realization of long-term assets), it testifies that considerable investments into long-term
assets are carried out and probably capacities of the organization extend;
- the pure cash flow from financial activity has to be positive (as this activity is
connected with change of own invested capital and borrowed funds). It testifies that
the organization finances the extending activity by external sources.
The analysis of cash flow gives the chance to draw more valid conclusions on
that:
- in what volume and from what sources the money and what main directions of
their use which came to the organizations were received;
- whether the organization for the short-term obligations is capable to answer;
- whether enough own means of the organization for implementation of investment activity;
- than divergences of size of the got profit and existence of money, etc. speak.
The analysis of cash flows is carried out in general on the organization, and also
in a section of main types of its activity, on separate structural divisions («the centers
of responsibility») for the following stages.
At the first analysis stage dynamics of total amount of a monetary turn of the organization is investigated. In the course of this aspect of the analysis rates of a gain of
total amount of a monetary turn are compared with rates of increments of assets of
the organization, outputs and realization of goods and services. For an assessment of
level of generation of cash flows in the course of economic activity of the organization the indicator of specific volume of a monetary turn on unit of the used assets is
used. Increase of this indicator in dynamics testifies to an intensification of generation of cash flows of the organization in the course of implementation of its economic
activity and vice versa.
At this stage of the analysis the special attention has to be paid to consideration of
dynamics of total amount of a monetary turn from operating activities of the organi22
zation. The indicator of specific volume of a monetary turn of the organization on
unit of the realized production can be for this purpose used.
At interpretation of dynamics of this indicator it is necessary to consider that the
volume of product sales makes a primary share of the sum of a gross positive cash
flow from operating activities. Therefore, increase of specific volume of a monetary
turn is defined on unit of the realized production with other things being equal by increase of the sum of a gross negative cash flow, that is growth of costs of production
and product sales that is characterized as a negative tendency. At last, at this stage of
the analysis it is necessary to compare rates of dynamics of duration of a monetary
turn from operating activities in days with rates of dynamics of a cycle of a monetary
turn (a financial cycle) of the organization.
At the second analysis stage dynamics of volume and structure of formation of a
positive cash flow (receipt of money) of the organization in a section of separate
sources is considered. The main attention at this stage of the analysis is paid to studying of sources of money by types of financial and economic activity of the organization. As the main generator of a positive cash flow are operating activities, as an important indicator of an assessment the coefficient of participation of operating activities in formation of this stream acts.
In the course of research of dynamics of volume and structure of formation of a
positive stream from operating activities of the organization the main attention has to
be paid to a ratio of sources of money from product sales and other types of operating
activities.
When studying dynamics of volume and structure of a positive cash flow from investment activity the main attention should be paid to receipt of the income from
long-term financial instruments of investment, comparing the level of this income
with average standard of the income in the capital market.
Investigating dynamics of volume and structure of a positive cash flow from financial activity, the main attention has to be paid to a ratio of the loan and own capital attracted from external sources. The structure of the raised loan money in the
course of the analysis has to be differentiated in a section of the short and long-term
credits and loans.
At the third analysis stage dynamics of volume and structure of a negative cash
flow (an expenditure of money) of the organization for the certain directions of expenses of money is considered. In the course of this stage of the analysis first of all is
defined, these expenses on main types of financial and economic activity of the organization how were in proportion distributed, they had regular or extreme character,
in what measure they were objectively caused. As in ensuring development of the organization the greatest role is played by investment expenses, as an important indicator of an assessment the coefficient of participation of investment activity in formation of a negative cash flow acts.
In the course of research of dynamics of volume and structure of formation of a
negative cash flow from operating activities of the organization the main attention
has to be paid to a ratio of an expenditure of money on production and realization of
goods and services, on the one hand, and other types of operating activities, with an23
other. The first type of expenses has to be subjected then to the itemized analysis of
expenses.
By consideration of dynamics of volume and structure of formation of a negative
cash flow from investment activity of the organization it is necessary to define how in
proportion the separate types of assets providing a gain of its market value developed
at the expense of an expenditure of this money; in what proportions investment expenses were connected with real and financial investment; in what volumes implementation of separate investment projects was financed. Analyzing dynamics of volume and structure of formation of a negative cash flow from financial activity, the
main attention should be paid to timeliness of repayment of the sums of a principal
debt on earlier attracted loans and loans, and also for volumes of payments and timeliness of calculations for dividends (percent).
At the fourth analysis stage balance of positive and negative cash flows on the organization in general is considered. In the course of this analysis the equation of balance model of a cash flow of the organization which has the following appearance is
used:
The sum of monetary assets for the beginning of the considered period + The total
amount of a positive cash flow in the considered period = The total amount of a negative cash flow in the considered period + The sum of monetary assets for the end of
the considered period.
Apparently from this equation, as the indicator of the imbalance of separate types
of cash flows generating deterioration of a financial position of the organization for
the level of its solvency reduction of the sum of monetary assets by the end of the
considered period acts (in comparison with their sum for the beginning of the period).
At the fifth analysis stage dynamics of formation of the sum of a pure cash flow
as most important indicator of an assessment of productivity of all financial management aimed at providing growth of market value of the organization is considered.
In the course of this analysis it is featured «quality of a pure cash flow» - the generalized characteristic of structure of sources of its formation. High quality of a pure
cash flow is characterized by growth of specific weight of the net profit got at the expense of increase in volume of production and decrease in their prime cost, and low at the expense of increase in a share of the net profit connected with implementation
of non-operating operations, realization of long-term assets, etc.
For elimination of influence of economic cycles, calculation of coefficient of sufficiency of a pure cash flow of the organization is recommended to be made in three
last years (but not less than for full business year).
At the sixth analysis stage uniformity of formation of cash flows of the organization for separate intervals of the considered time period is investigated. Considering
that unevenness of formation of cash flows of the organization in time generates a
number of serious commercial, financial and investment risks or is their reflection,
the sizes of time intervals in the course of research have to be minimum and not exceed one month. Objects of the analysis of uniformity of cash flows of the organization first of all have to be:
- total amount of a monetary turn;
- total amount of a positive cash flow;
24
- total amount of a negative cash flow;
- the sum of the positive cash flow connected with product sales;
- the sum of the negative cash flow connected with real investment;
- total amount of a pure cash flow;
- the sum of the net profit got from product sales.
For calculation of degree of uniformity of formation of cash flows of the organization for separate intervals of time indicators of a mean square (standard) deviation
and coefficient of a variation are used.
At the seventh analysis stage synchronism of formation of positive and negative
cash flows in a section of separate intervals of the considered time period is investigated. Need of such research is dictated to that in the conditions of high unevenness
of formation of different types of cash flows in a section of separate time intervals in
the organization considerable volumes of temporarily free monetary assets or their
temporary deficiency are formed.
Results of the analysis are used for identification of reserves of optimization of
cash flows of the organization and their planning and control for the forthcoming period.
Control questions
1. What interpretations of the term «cash flow» have distribution in economic literature?
2. In what the sense the concept «pure cash flow» consists?
3. How cash flows are classified by service scales?
4. How cash flows are classified by kinds of activity?
5. What represent cash flows from operating, investment and financial activities?
6. In what a role of a cash flow in economic activity of the organization?
7. What factors influence formation of cash flows?
8. What main sources of receipt of money in the organization?
9. In what the purpose and tasks of the analysis of cash flows?
10. What main methods are used in the analysis of cash flows?
11. In what essence of traditional, economic-mathematical and heuristic methods
of the analysis of cash flows?
12. In what essence of indicators of dynamics of cash flows?
13. In what essence of indicators of quality of cash flows?
14. How indicators of profitability of cash flows are defined?
15. What indicators are used for an assessment of efficiency of cash flows?
16. How the coefficient of liquidity of cash flows pays off?
17. How the effectiveness ratio of cash flows pays off?
18. How cash flows of the organization from the remains of money are interconnected?
19. On what stages the analysis of cash flows is carried out?
20. In what the analysis of dynamics of total amount of a monetary turn of the organization consists?
25
Tests
1. As a pure cash flow it is understood:
a) net - result of the movement of positive and negative money as a result of implementation of operations of the organization;
b) inflow of money in the form of the sales proceeds received for the period;
c) a difference between inflow of money in the form of the received sales proceeds and outflow of money for the period.
2. The cash flow from operating activities includes:
a) receipts from product sales and payments to suppliers;
b) purchase and realization of fixed assets;
c) share issue and payment of dividends.
4. In the report on cash flow of the organization it is developed the sums of receipts and expenses which arose throughout the reporting period as a result are given:
a) operating, financial and investment activities;
b) production реализационной activity;
c) innovative, investment and financial activity;
d) operating, investment, financial and innovative activities.
5. Receipt of money from product sales belongs to:
a) investment activity;
b) operating activities;
c) financial activity;
d) all answers are right.
6. The entering cash flow represents:
a) the size of receipts of money for the reporting period;
b) pure inflow of money for the reporting period;
c) the size of an expenditure of money for the reporting period;
d) net cash outflow for the reporting period.
7. The proceeding cash flow represents:
a) the size of receipts of money for the reporting period;
b) pure inflow of money for the reporting period;
c) the size of an expenditure of money for the reporting period;
d) net cash outflow for the reporting period.
8. Leaving of means owing to acquisition of fixed assets and other long-term assets belongs to:
a) investment activity;
b) operating activities;
c) financial activity;
c) all answers are right.
9. Receipt of money from sale of shares and parts in own capital belongs to:
a) investment activity;
b) operating activities;
c) financial activity;
d) all answers are right.
10. Cash flow as a result of financial activity is:
26
a) the obtained loans;
b) other payments;
c) repayment of loans;
d) receipt of own capital;
e) payment of dividends.
11. Cash flow as a result of investment activity is:
a) receiving percent;
b) realization of financial investments;
c) receipt (receiving) of dividends;
d) acquisition of long-term assets;
e) all correct answers.
12. Cash flow from operating activities is:
a) change (increase or reduction) short-term obligations;
b) payment of percent;
c) payment of income tax;
d) receipt of money from buyers;
e) transfer of money to suppliers.
13. Receipts of sales proceeds belong to:
a) financial activity;
b) operating activities;
c) investment activity.
14. Outflow of money upon purchase of fixed assets belongs to the following kind
of activity:
a) the financial;
b) the operational;
c) the investment.
15. For an assessment of a pure cash flow of the organization use data:
a) balance sheet;
b) profit and loss report;
c) report on cash flow.
27
2. METHODS OF AN ASSESSMENT OF CASH FLOWS
2.1. Direct method of an assessment of cash flows
The direct method of an assessment of cash flows is based on disclosure of main
types of gross monetary receipts and gross monetary payments, i.e. an initial element
are the sales proceeds.
The direct method has available procedure of calculation which is clear to domestic accountants and analysts. It is directly connected with registers of accounting, is
convenient for calculation of indicators and control of receipt and an expenditure of
money. In the long term the direct method of an assessment of cash flows gives the
chance to estimate the level of liquidity of the organization.
In operational management of finance the direct method can be used for control of
process of formation of proceeds from sales of production and conclusions concerning sufficiency of money for payments according to financial obligations.
The technique of an assessment of cash flows by a direct method is rather simple
as is based directly on the report about cash flow. She allows to study:
- to the loudspeaker of cash flows (the cash flow is reflected in a form 3 in two
years - reporting and previous);
- structure and structure of cash flows in a section of kinds of activity, sources and
the directions of use of money;
- structure and structure of a pure cash flow on kinds of activity.
Besides, on the basis of this form it is possible to judge liquidity of the organization, i.e. sufficiency of means for payments according to short-term obligations, and
also implementation of investment activity as in details opens cash flow on accounts
of the organization.
Methodical basis of a direct method of an assessment of cash flows is the balance
method which features is the following:
• doesn't consider the temporary value of money;
• calculation of the rest of money is conducted on the basis of expression:
Mbeg + CFpos - CFneg = Mend.
The direct method is directed on data acquisition, characterizing both a gross, and
pure cash flow of the organization in the reporting period. It is urged to reflect all
volume of receipt and an expenditure of money in a section of separate kinds of activity and on the organization in general, is convenient for calculation of indicators of
control of receipt and an expenditure of money. Thus excess of receipts over payments both on the organization in general, and on kinds of activity means inflow of
money, and excess of payments over receipts - their outflow.
Considering indicators of cash flows on kinds of activity, it should be noted that
the greatest volume of money supply is provided by operating activities of the organization. Positive dynamics of a pure cash flow from operating activities characterizes
scales of growth of financial capacity of the organization.
From operating activities the pure cash flow is defined by a direct method as follows:
28
Pure cash flow
from operating activities
Positive
cash flow
Negative
cash flow
Revenue from
production
Payment of
production
Advance payments from
buyers and customers
Salary and
assignments
Other receipts
Taxes and fees
The short-term
the financial
investments
Percent on
to the credits
Other payments
According to the principles of the international account the organization chooses a
method of calculation of cash flows independently, however preferable it is considered the direct method allowing to gain a better understanding about their volume and
structure. The basic formula on which calculation of the sum of a pure cash flow
from operating activities of the organization is made by a direct method, has the following appearance:
CFpur.oa = Mp.s + Mor.oa - Mpa.ii - SPo.p - SPa-m.p - TPb - TPo-b.f - Mop.oa,
Below the order of an assessment of cash flows is shown by a direct method:
Monetary
receipts
from buyers
Monetary
payments
- to suppliers
and workers
Money
Payment
Pure cash flow
from operating
of percent
from operating
= activities
- and taxes =
activities
The algorithm of recalculation by a direct method can be presented as follows:
1) the monetary revenue is equal to proceeds from sales of production (profit and
loss report) plus reduction of receivables or minus increase in receivables (balance);
2) expenses are equal in a monetary form to prime cost of the realized production
(profit and loss report) plus increase in the remains of stocks or minus reduction of
the remains of stocks (balance) and plus reduction of receivables or minus increase in
receivables;
29
3) other expenses are equal to expenses from operating activities (profit and loss
report) in a monetary form plus expenses or minus reduction of expenses (balance)
and plus reduction of other receivables or minus increase in other receivables;
4) wear is equal in a monetary form to zero (the added wear minus the added
wear);
5) other payments are equal in a monetary form plus reduction of accounts payable or minus increase in accounts payable;
6) net - cash flow from operating activities is equal: item 1 - item 2 - item 3 - item
4 - item 5.
The direct method of an assessment of cash flows provides reflection of the full
sums of the money which arrived from buyers and paid to suppliers through the settlement account, cash desk or money equivalents. By drawing up the report on cash
flow need to classify each economic operation at reference it by sight activity arises
by a direct method. Existence of a large number of such operations demands serious
labor expenses by drawing up the report. Other complexity by drawing up the report
on cash flow by a direct method is need of «cleaning out» (elimination) of internal
turns (for example, an exception of movements of cash between the settlement account and cash desk, between different types of bank accounts of the organization,
etc.). Otherwise it will lead to distortion of the reporting by unreasonable increase in
cash flows.
To estimate all directions of receipt (inflows) and leavings (outflows) of funds of
the organization by a direct method it is possible to make by means of table 2.
Table 2 - Scheme of cash flow (direct method)
Indicators
The positive
cash flow
I. Cash flow from operating activities
1. Receipt of money:
• product sales
• other revenue
• the advance payments received from buyers, customers
• receipts under contracts of insurance
• the earned rewards
• other receipts
2. Leaving of money:
• payments to suppliers for production
• the advance payments issued to suppliers of products
• payments for compensation
• remuneration payment
• payments under contracts of insurance
• income tax and other payments in the budget
• other payments
3. A pure cash flow from operating activities
II. Cash flow from investment activity
1. Receipt of money:
• realization of fixed assets
• realization of intangible assets
30
The negative
cash flow
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
• realization of other long-term assets
• realization of share tools of other organizations and shares in
joint business
• realization of debt tools of other organizations
• compensation at loss of control over the affiliated organizations
• realization of other financial assets
• future and forward contracts, options and swaps
• the received dividends
• the earned rewards
• other receipts
2. Leaving of money:
• acquisition of fixed assets
• acquisition of intangible assets
• acquisition of other long-term assets
• acquisition of share tools of other organizations (except affiliated) and share in joint business
• acquisition of debt tools of other organizations
• acquisition of control over the affiliated organizations
• acquisition of other financial assets
• granting loans
• future and forward contracts, options and swaps
• investments into the associated and affiliated organizations
• other payments
3. A pure cash flow from investment activity
III. Cash flow from financial activity
1. Receipt of money:
• issue of shares and other financial instruments
• receiving loans
• the earned rewards
• other receipts
2. Leaving of money:
• repayment of loans
• remuneration payment
• payment of dividends
• payments to owners for stocks of the organization
• other leavings
3. A pure cash flow from financial activity
4. A pure cash flow on all kinds of activity
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
It is necessary to remember that the cumulative cash flow has to be equal to a difference of initial and final balance of money for the period.
Lack of a direct method is that it doesn't open interrelation of the received financial result and change of the absolute size of funds of the organization. Besides, this
method demands big expenses of time, than other methods of an assessment of a cash
flow, and the reporting received with its use is less useful.
We will consider on an example preparation of the report on cash flow by a direct
method.
Basic data:
31
As basic data additional data, necessary for drawing up the report, according to
accounting of the organization are submitted the balance sheet of the organization 1
for December 31, 2013 (tab. 3) and the profit and loss report for 2013 (tab. 4), and
also.
Table 3 - Balance sheet
Indicators
Money
Short-term receivables
Stocks
Deferred expenses
Total short-term assets
Fixed assets
Total long-term assets
Total assets
Short-term accounts payable
Percent to payment
Current tax obligations
Total short-term obligations
Bonds for payment
Total long-term obligations
Total obligations
Common stocks
Retained earnings
Total capital
Total obligations and capital
2012
48
160
280
16
504
648
648
1152
160
16
48
224
256
256
480
320
352
672
1152
2013
68
240
336
24
668
760
760
1428
140
12
88
240
360
360
600
380
448
828
1428
20
80
56
8
(million tenges)
Dynamics
Increase
Increase
Increase
Increase
112
Increase
20
4
40
Reduction
Reduction
Increase
104
Increase
60
96
Increase
Increase
Table 4 - The profit and loss report for 2013
Indicators
Proceeds from sales of production
Cost of sales
Salary and other operating expenses
Expenses on percent
Expenses on taxes
Expenses on depreciation
Loss from realization of fixed assets
Profit on redemption of stocks
Net profit
Sum, one million tenges
2360
(1200)
(864)
(28)
(60)
(96)
(24)
64
152
According to this reporting we have the following data:
• short-term receivables were formed in connection with sale of the material and
production stocks (MPS), and creditor – in connection with purchase of MPS. Thus in
2013 it is bought objects of fixed assets for the sum of 280 million tenges, and 10
million tenges were paid by cash, for other sum bonds are issued;
• fixed assets for 48 million tenges, a loss from realization of production - 24 million tenges are sold;
32
• money from issue of bonds of 60 million tenges is received;
• at repayment of bonds with a balance cost of 136 million tenges income in 64
million tenges because of payment of only 7218 million tenges for them is gained;
• payment of dividends made 56 million tenges. Dividends belong to financial activity.
When using a direct method the sums of receipt and a funds expenditure according to accounting of the organization are transferred to the report. For calculation by a
direct method we can make the report by updating of articles of the profit and loss report, since revenue, then prime cost, etc.:
1. Correction of proceeds from sales of production for the sum of short-term receivables. The revenue is corrected on increase in short-term receivables (with minus) or reduction of short-term receivables (with plus).
The increase (reduction) for the reporting period of all articles of balance is presented in table 26. We will take a line of balance «Short-term receivables» and we
will look at its change. There was an increase in short-term receivables for the period.
Then:
Cash flow = Revenue of product sales - Increase in short-term receivables (+ Reduction of short-term receivables) = 2360 - 80 = 2280 million tenges.
2. Correction of prime cost on short-term accounts payable and stocks. Prime cost
is corrected on increase in stocks (with plus), reduction of stocks (with minus), increase in short-term accounts payable (with minus) or reduction of short-term accounts payable (with plus). An order of adjustments the same, as for revenue. We
take prime cost from the profit and loss report and we correct it on change of stocks
and short-term accounts payable:
Cash flow = Prime cost + Increase in stocks - Increase in short-term accounts
payable (-Reduction of stocks + Reduction of short-term accounts payable) = 1200 +
56 + 20 = 1276 million tenges.
3. Expenses on percent are corrected on debt on percent. Expenses on percent
from the profit and loss report are corrected on change of debt on percent from balance:
Cash flow = Expenses on percent - Increase in debt (+ Reduction of debt) = 28 +
4 = 32 million tenges.
4. Expenses on taxes are corrected on debt on taxes. Expenses on taxes from the
profit and loss report are corrected on change of debt on taxes from balance:
Cash flow = Expenses on taxes - Increase in debt (+ Reduction of debt) = 60 - 40
= 20 million tenges.
5. Operating expenses are corrected on change of expenses of future periods and
the other added expenses (reserves):
Cash flow = Operating expenses + Increase in expenses of future periods - Increase in the added expenses (-Reduction of expenses of future periods + Reduction
of the added expenses) = 864 + 8 = 872 million tenges.
Thus, revealed all cash flows and we can make the report regarding operating activities. Operations on purchase and sale of fixed assets belong to the section «Money
from Investment Activity». Therefore we include all data which we have on this operation in the report on cash flow. In this case it is proceeds from sales of fixed assets
33
of 60 million tenges and purchase of fixed assets for 40 million tenges. Operations
belong to financial activity:
- issue of bonds - 60 million tenges;
- payment for bonds - 72 million tenges;
- the dividends paid - 70 million tenges.
And for the beginning of the period we take balance of money for the end of the
period from balance. As a result the report will look as follows (tab. 5).
Table 5 - Report on cash flow (direct method)
Indicators
Money from operating activities:
- received from product sales
- spent for purchase of stocks
- spent for payment of percent
- spent for payment of taxes
- operating expenses
Pure cash flow from operating activities
Money from investment activity:
- received from realization of fixed assets
- spent for purchase of fixed assets
Pure cash flow from investment activity
Money from financial activity:
- received from issue of bonds
- paid on bonds
- the paid dividends
Pure cash flow from financial activity
In total increase (reduction) in money
Balance of money for the beginning of the period
Balance of money for the end of the period
Sum, million tenges
2280
(1276)
(32)
(20)
(872)
80
48
(40)
8
60
72
56
(68)
20
48
68
2.2. Indirect method of an assessment of cash flows
The indirect method of an assessment of cash flows is based on identification and
the accounting of the operations connected with cash flow of the organization and
consecutive correction of net profit, that is an initial element is the profit.
The essence of an indirect method consists in transformation of size of net profit
to the size of money. Thus recognize that in activity of each organization there are
types of expenses and the income, separate, quite often considerable in size, which
reduce (increase) profit, without mentioning the size of its money. In the course of
the analysis for the sum of the specified expenses (income) make adjustment of size
of net profit so that the items of expenditure which aren't connected with outflow of
means, and articles of the income which aren't followed by their inflow didn't influence the size of net profit.
Advantage of an indirect method when using in operational management is that it
allows to establish compliance between financial result and own current assets. In the
long term the indirect method allows to reveal the most problem «congestion places»
34
of the frozen money and, proceeding from it, to develop ways of an exit from current
situation.
The indirect method is directed on data acquisition, characterizing a pure cash
flow of the organization in the reporting period. It joins the receipts of money received as a result of calculations from reporting balance, the profit and loss report.
Only some cash flows are shown on the actual volume: depreciation charges; receipts
from implementation of own stocks, bonds, receiving and payment of dividends, receiving and repayment of the credits and loans, capital investments in fixed assets,
intangible assets, financial investments, a gain of current assets; sale of fixed assets,
intangible assets, securities. Information sources for development of the reporting on
cash flow of the organization by this method are a form 1 «Balance sheet» and the
«Profit and loss report» form 2.
For carrying out calculations it is necessary to use data of the turnover sheet on
accounts of accounting, and also separate analytical records.
At the heart of calculations - net profit, depreciation charges, and also changes of
sizes of assets and liabilities of the organization. Inflows of money according to an indirect method of the analysis can be caused by increase in articles of a passive of balance and reduction of assets of balance. Outflows, on the contrary are caused by increase in assets and reduction of articles of a passive.
Calculation of a pure cash flow by an indirect method is made on kinds of activity
and the organization in general, by the corresponding correction of net profit for the
sum of changes in stocks, receivables, accounts payable, the short-term financial investments and other assets relating to operating activities. This method allows to coordinate different types of activity and to establish a ratio between net profit and
changes in assets and liabilities of balance of the organization in the reporting period.
In a general view the formula for calculation and an assessment of cash flow can
be written down as follows:
CFpur = NP + DFA + ΔAR + ΔMS + ΔAP.
To establish, with what activity (operational, investment or financial) cash flow is
connected, it is possible to use the following interrelations between articles of balance
and kinds of activity of the organization.
On operating activities of calculation of a pure cash flow of the organization by
Basic Element as an indirect method its net profit got in the reporting period acts. By
introduction of amendments the net profit will be transformed then to an indicator of
a pure cash flow. A pure cash flow from operating activities in the considered period
it is possible to calculate on a formula:
CFpur.oa = NP + DFA - ΔMS - ΔAR + ΔFIs-t + ΔAP.
Thus, the indirect method demonstrates distinction between pure financial result
and a pure cash flow of the organization. By means of a number of adjustment procedures the financial result of the organization (net profit or a loss) will be transformed
to the size of a pure cash flow from operating activities. The factors promoting increase and reduction of a pure cash flow are at the same time visible.
After that study the reasons of change of each component of a pure cash flow in
more detail.
35
The sum of a pure cash flow is determined by investment activity as a difference
between the sum of realization of separate types of long-term assets and the sum of
their acquisition in the reporting period. Calculation of outflow of an indicator for
investment activity is made on a formula:
CFpur.ia = ΔFA - ΔIA - ΔICI - ΔFIl-t - ΔOAl-t.
Each component of this formula can promote increase and reduction of a cash
flow. In the profound analysis factors of change main composed a pure cash flow
from investment activity are in more detail studied.
The sum of a pure cash flow is determined by financial activity as a difference between the sum of the financial resources attracted from external sources and the sum
of a principal debt, and also dividends (percent) paid to owners of the organization. A
formula on which calculation of this indicator for financial activity is made:
CFpur.fa = ΔOC + ΔCLl-t + ΔCLs-t.
The sum of cash flows on the specified three activities of the organization forms a
pure cash flow. The size of a pure cash flow can be considered as potential amount of
money which the organization for results of the activity has to have:
CFpur = CFpur.oa + CFpur.ia + CFpur.fa.
Further it is expedient about to analyze factors of change of profit, such as: the
expenses included in product cost; changes of volumes of realization on credit;
charge of taxes, etc.
The reporting profit is corrected and at a size of the amendments which aren't reflecting cash flow such as: depreciation of fixed assets and intangible assets; loss
from realization of fixed assets and intangible assets; profit on realization of fixed assets; costs of research and developmental works.
For coordination of changes of profit, working capital and money it is necessary
to execute some predesigns.
The first calculation - determination of volumes of purchases of materials for the
reporting period:
PM = CSap + ΔAP.
The second calculation - determination of the sum of the material inputs included
in product cost:
MS = PM – ΔMS.
The third calculation - determination of the sum of monetary receipts from debtors:
Mrd = P – ΔAR.
When using an indirect method the net profit or a loss of the organization are corrected taking into account results of operations of non-monetary character, and also
changes which happened in operational working capital. Thus, this method:
- shows interrelations between different types of activity of the organization;
- establishes dependence between net profit and changes in working capital of the
organization for the reporting period.
Below the order of an assessment of cash flows is shown by an indirect method:
Earnings
before
Adjustments on
non-monetary
Operating
profit before
36
Changes
of working
Pure cash flow
from operating
tax
+
operations
of investment
and financial
character
=
change
+
of working
capital
capital
=
activities
The indirect method of an assessment of cash flows is realized on corrections of
net profit of the reporting period as a result of which the last becomes equal to a pure
cash flow (a gain of the rest of money). Such adjustments are conditionally subdivided into three groups on nature of economic operation;
1) the adjustments connected with discrepancy of time of reflection of the income
and expenses in accounting with inflows and outflows of money on these operations;
2) the adjustments connected with the economic operations which don't have direct impact on formation of profit, not causing cash flow;
3) the adjustments connected with the operations having direct impact on calculation of an indicator of profit, but not defiant cash flows.
In the methodical purposes it is possible to allocate a certain sequence of implementation of such adjustments.
At the first stage influence on pure financial result of operations of non-monetary
character is eliminated. For example, leaving of objects of fixed assets and intangible
assets causes a registration loss at a rate of their residual cost. It is quite clear that no
impact at a size of funds of operation of write-off from balance of residual cost of
property is made as the related outflow of means happened much earlier - at the time
of its acquisition. Therefore, the loss sum at a rate of not completely depreciation cost
has to be added to the size of net profit.
At the second stage adjustment procedures are carried out taking into account
changes in articles of short-term assets and short-term obligations. The purpose of
carrying out adjustments consists in showing, at the expense of what articles of shortterm assets and short-term obligations there was a change of the sum of money at the
end of the reporting period in comparison with its beginning. The increase in articles
of short-term assets is characterized by use of means and, therefore, is regarded as
outflow of money. Reduction of articles of short-term assets is characterized by release of means and regarded as inflow of money.
Corrections of net profit or loss are made for elimination of divergences in formation of pure financial result and a pure cash flow taking into account:
- changes in stocks, receivables, short-term financial investments, short-term obligations, excepting loans and the credits, during the period;
- non-monetary articles: depreciation of long-term assets; exchange differences;
the profit (loss) of last years revealed in the reporting period and another;
- other articles which have to find reflection in investment and financial activity.
As a result of correction of net profit real inflow (outflow) of money from operating, financial and investment activities is established.
For calculation of a gain or decrease in money from operating activities it is expedient to carry out the following operations:
1) to calculate short-term assets and short-term obligations, proceeding from a
method of an assessment of cash flows. When updating articles of short-term assets it
37
is necessary to subtract their gain from net profit, the organization being at the command after the taxation, and for the analyzed period to add their decrease to this profit. When updating short-term obligations, on the contrary, their gain should be added
to net profit as it doesn't mean outflow of money; reduction of these obligations is
subtracted from net profit;
2) to correct net profit on the expenses which aren't demanding payment of money. For this purpose these expenses (depreciation of fixed assets and intangible assets) for the period should be added to net profit;
3) to exclude influence of profit and the losses received not from operating activities to which financial results from realization of long-term assets and securities of
other issuers concern. The influence of these operations considered also at calculation
of net profit in the profit and loss report is corrected for an exception of the repeated
account in the following order:
a) losses from these operations should be added to net profit;
b) the income from these operations needs to be subtracted from the sum of net
profit.
Besides, in this section in order to avoid the repeated account influence on net
profit of those articles which are considered also in sections of investment and financial activity is excluded.
Thus, depreciation of fixed assets and intangible assets is the significant nonmonetary factor influencing the size of a cash flow. In accounting depreciation charges are treated as an element of product cost and services. Therefore at calculation of
cash flows for the period it is necessary to restore the sum of these assignments, that
is it is necessary to add the sum of the added wear to the size of net profit.
Influence of non-monetary articles on the size of a cash flow should be defined as
follows:
• the sums of residual cost not to the amortized fixed assets and other long-term
assets at their write-off carry on reduction of financial result. As sale of different
types of property is reflected in profit in the form of a difference between the price of
realization and residual cost while inflow of money in the reporting period happens in
the full sum equal to the realization price, the residual cost of property has to be added to profit;
• material inputs in structure of product cost join in process of their holiday in
production, however payment of accounts on their acquisition is a real outflow of
money therefore the sum of increase in production stocks and expenses should be
subtracted from profit. At the same time return of materials at elimination of fixed assets or from production isn't followed by outflow of money therefore the profit increases by the corresponding sum;
• in case of growth of account balances of short-term obligations inflow of money
in this connection it is necessary to increase profit by this sum takes place.
When using an indirect method the net profit or a loss of the organization are corrected taking into account results of operations of non-monetary character, and also
changes which happened in operational working capital. Thus, this method:
- shows interrelations between different types of activity of the organization;
38
- establishes dependence between net profit and changes in working capital of the
organization for the reporting period.
For an indirect method it is necessary to remember the following rules. We take
net profit and we correct it on all non-monetary articles to come to the cash flows
presented in the report on cash flow. Three types of adjustments are applied to an indirect method:
1. Adjustments on non-monetary components of the income and expenses relating
to operating activities:
• the increase in short-term assets – is subtracted;
• reduction of short-term assets – increases;
• the increase in obligations - increases;
• reduction of obligations – is subtracted.
2. Adjustments on the income and expenses, not leaders neither to receiving, nor
to payment of money:
• expenses - increases;
• the income - it is subtracted.
3. Adjustments on the income and expenses which aren't relating to operating activities:
• expenses - increases;
• the income - it is subtracted.
The algorithm of formation of a cash flow from operating activities by an indirect
method includes realization of the following stages:
1) according to the reporting the net profit of the organization is defined;
2) the sums of articles of the expenses which aren't causing cash flow in reality
are added to net profit (for example, depreciation);
3) are subtracted any increases (reduction) which occurred in articles of shortterm assets except for the article «Money and Their Equivalents» (increase).
4) increase any increases (reduction) which occurred in articles of the short-term
obligations which aren't demanding percentage payments (are subtracted).
Estimating pure cash flows on kinds of activity it must be kept in mind the following:
• the pure cash flow from operating activities has to be positive;
• the positive cash flow from operating activities is an evidence of successful activity of the organization and possibility of further development at the expense of
own means;
• the pure cash flow from investment activity has to be negative (that is payments
have to exceed receipts as investment activity is connected with acquisition and sale
of long-term assets), testifies that considerable investments into long-term assets are
carried out and probably capacities of the organization extend;
• the pure cash flow from financial activity has to be positive (as this activity is
connected with change of own invested capital and borrowed funds), it testifies that
the organization finances the extending activity by external sources (and not just retained earnings and accounts payable);
• for the stable developing organization payments and receipts from operating activities have to prevail in cumulative receipts and payments.
39
Calculations of the sum of a pure cash flow of the organization from investment
and financial activity, and also on the organization in general are carried out by an
indirect method on the same algorithms, as at a direct method.
Preparation of the report on cash flow on the basis of an indirect method takes
place in some stages:
1) calculation of changes for articles of balance and definition of the factors influencing increase or reduction of funds of the organization;
2) analysis of the «Profit and loss report» form 2 and classification of sources of
money and directions of use;
3) combination of the obtained data in the report on cash flow.
To estimate all directions of receipt (inflows) and leavings (outflows) of funds of
the organization by an indirect method it is possible to make by means of table 6.
Table 6 - The scheme of cash flow from operating activities (an indirect method)
Indicators
Positive cash flow
Negative cash flow
1. Profit (loss) to the taxation
2. The operations correcting net profit:
• change of depreciation and depreciation of fixed
assets and intangible assets
• depreciation of goodwill
• depreciation of trade and other receivables
• write-off of cost of the assets (or the leaving
group) intended for sale at fair value minus costs of
sale
• loss (profit) on leaving of fixed assets
• loss (profit) on investment property
• loss (profit) on early repayment of loans
• a loss (profit) on the other financial assets reflected at fair value with adjustment through the profit
and loss report
• change of expenses (income) on financing
• change of remunerations to workers
• change of expenses on remunerations by share
tools
• the income (expense) on the postponed taxes
• unrealized positive (negative) exchange difference
• change of a share of the organization in profit of
the associated organizations and the joint activity
considered on a method of individual share
• other non-monetary operational corrections of the
general cumulative profit (loss)
• changes in stocks
• changes of a reserve
• changes in trade and other receivables
• changes in trade and other accounts payable
• changes in debt on taxes and other obligatory
payments in the budget
• changes in other short-term obligations
х
х
х
х
40
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
х
• the paid remunerations
• plachenny income tax
3. Pure sum of money from operating activities
х
х
х
х
To receive change of the rest of money for the period, to net retained earnings it is
necessary to add:
- an increment of own capital at the expense of other causes;
- increment of the credits and loans;
- increment of wear of depreciable long-term assets
and to subtract:
- an increment of long-term assets (at initial or recovery cost);
- increment of stocks;
- receivables increment;
- increment of short-term financial investments.
Thus it must be kept in mind that increments for the reporting period can be both
positive, and negative; at subtraction they respectively change a sign for the opposite.
The indirect method is slightly simpler direct, and losses of quality of the provided information are minimum, however there is a probability of distortion of a true
picture of cash flow as at its use absolute values of payments and receipts aren't considered.
The main lack of an indirect method is that the understanding of the provided information for the user of the reporting is complicated. From the report it isn't visible,
from what source money was received and on what they were spent. Only amendments to net profit on a charge method are reflected.
The report on cash flow can be received from operating activities and by means of
an indirect method. On algorithm of construction this method is the return to direct.
The report made by an indirect method won't show all turn of money, it will conditionally show a difference between receipt and leaving under separate articles. Besides, considering that expenses of the organization are formed with frequency in one
month and with a considerable delay upon termination of the period, the report can't
be prepared quickly and, as a rule, prepares with frequency of providing interim financial statements. However analytical opportunities and presentation, a direct connection with financial result do the report made by an indirect method, the irreplaceable analytical tool.
We will consider on an example drawing up the report on cash flow by an indirect
method:
1. Net profit – 152 million tenges.
2. Adjustments on non-monetary articles. Depreciation doesn't attract outflow of
money, therefore, is the non-monetary item of expenditure. Expenses on depreciation
are a part of net profit, for their exception to operating profit it is necessary to add
depreciation (96 million tenges). The loss from sale of fixed assets, and also profit on
issue of bonds are non-monetary articles therefore the loss (24 million tenges) increases, and the profit (64 million tenges) is subtracted.
41
3. Change of working capital. The increase in stocks conducts to reduction of
money as if stocks are acquired and paid, so there was an outflow of money (56 million tenges)
Growth of receivables testifies to reduction of money (80 million tenges). Reduction of accounts payable, as a rule, happens by payment of money, i.e. decrease in accounts payable testifies to outflow of money (20 million tenges). Also there was an
increase in expenses of future periods (8 million tenges), reduction of percent to
payment (4 million tenges), increase in taxes (40 million tenges).
We count streams from investment and financial activity how it is described in a
direct method. Thus, the report on cash flow made by an indirect method will have
the following appearance (tab. 7).
Table 7 - Report on cash flow (indirect method)
Indicators
Money from operating activities:
The profit which isn't shared from operating activities
Adjustments:
Depreciation
Loss from realization of fixed assets
Profit on repayment of bonds
Increase in receivables
Increase in stocks
Increase in expenses of future periods
Reduction of accounts payable
Reduction of percent to payment
Increase in taxes
Pure cash flow from operating activities
Money from investment activity:
The money received from realization of fixed assets
The money spent for purchase of fixed assets
Pure cash flow from investment activity
Money from financial activity:
The money received from a share issue
The money received on bonds
The paid dividends
Pure cash flow from financial activity
Money and their equivalents for the beginning of the reporting period
Money and their equivalents for the end of the reporting period
Sum, million tenges
152
96
24
(64)
(80)
(56)
(8)
(20)
(4)
40
80
48
(40)
8
60
(72)
(56)
(68)
48
68
Sections of the report on investment and financial activity will coincide with data
of table 5 as pay off only by a direct method.
2.3. Method of a liquid cash flow
Except direct and indirect methods of an assessment of size of money there is a
so-called method of a liquid cash flow allowing to calculate quickly a cash flow in the
organization. It can be used for express diagnostics of a financial position of the or42
ganization. The liquid cash flow is an indicator of the scarce or excess balance of
money arising in case of a full covering of all debt obligations on borrowed funds.
The indicator of a liquid cash flow includes all volume of borrowed funds and, as
a result, expresses influence of the credits and loans on efficiency of activity of the
organization from the point of view of generation of monetary cash. The algorithm
for calculation of a liquid cash flow has an appearance:
LCF = (CLl-t.1 + CLs-t.1 - M1) - (CLl-t.0 + CLs-t.0 - M0).
Example: CLl-t.1 = 4375,0 thousand tenges; CLl-t.0 = 5687,5; CLs-t.1 = 7266,0; CLs-t.0
= 6041,0; M1 = 1330,0; M0 = 1207,5 thousand tenges;
LCF = (4375,0 + 7266,0 - 1330,0) - (5687,5 + 6041,0 - 1207,5) =-210,0 thousand
tenges.
In this example the organization has scarce balance of a cash flow for the end of
month in 210,0 thousand tenges.
According to the Ledger it is possible to make dynamic ranks of indicators for the
end of every month and to draw a conclusion on the level of solvency of the organization. The specified calculations can be done and on the lump of the credits, loans
and money which arrived during the settlement period.
Difference of an indicator of a liquid cash flow from other parameters of liquidity
(absolute, intermediate, current) consists that the last reflect ability of the organization to repay the obligations to external creditors. The liquid cash flow characterizes
an absolute value of the money received from operating activities of the organization
therefore it is Bol the «internal» indicator expressing productivity of its work. It is
important also for potential investors and creditors of this organization.
The indicator of a liquid cash flow includes all volume of borrowed funds and, as
a result, expresses influence of the credits and loans on efficiency of activity of the
organization from the point of view of generation of monetary cash.
Management of liquidity of the organization includes control of receipts and payments of money. The problem of management of liquidity of the organization consists in acceleration of receipts and reduction of the period between payment of settlement documents by clients and the moment when this money becomes available.
At payments of money function of management is control over payments and minimization of the expenses of the organization connected with their implementation.
The general period of receipts or payments depends on a form of clearing settlements
between the supplier and the buyer.
In a general view liquidity is defined as possibility of the organization to cover the
long-term obligations to contractors. There are some levels of liquidity.
Limited liquidity means that the organization can't use favorable commercial opportunities in connection with restriction of a freedom of choice and actions of the
guide to decision-making.
Low liquidity means that the organization isn't capable to pay the short-term debt
obligations that can result in need of sale of part of long-term assets, and in the worst
option - to long insolvency and bankruptcy.
In the Kazakhstan organizations a criterion of emergence of financial difficulties
is the tendency of decrease in a share of money as a part of short-term assets at the
increasing volumes of short-term obligations. Therefore the monthly analysis of
43
money and the most urgent obligations (which repayment period expires in this
month) can give an objective picture of surplus (shortcoming) of funds of the organization.
More rational management of cash flows leads to increase of level of financial
flexibility of the organization that is expressed in:
- operational management of a monetary turn from the point of view of balance of
receipt and use of money;
- growth of volume and minimization of expenses on product sales due to expeditious maneuvering by resources of the organization;
- the maneuvering improvement by borrowed funds characterized by decrease in
expenses on percentage payments according to debt obligations;
- increase of liquidity of balance of the organization;
- possibilities of release of monetary resources for their investment into more
profitable objects at rather low expenses on service of a debt;
- improvement of conditions of negotiations with suppliers and creditors;
- creation of reliable base for an assessment of overall performance of structural
divisions of the organization (especially in the analysis of cash flows on kinds of activity);
- the forecast of ability of the organization to neutralization of threat of insolvency
(bankruptcy) due to internal character.
The indicator of a liquid cash flow can find broad application in activity of commercial banks at a solvency assessment as expresses degree and potential solvency at
return of a debt to creditors.
The liquid cash flow is closely connected with concept of financial leverage (lever) characterizing a limit to which activity of the organization can be improved at the
expense of the credits of bank. The effect of financial leverage is calculated on a formula:
EFL = (1 - rcpt) · (EPa - rk.av) · (LC / OC).
At positive value of EFL the organization has an increase to profitability of own
capital (EPa > rk.av). At negative value of EFL (EPa < rk.av) – the deduction from profitability of own capital, that is the obtained bank credit is utilized inefficiently. Therefore, financial leverage - the objective factor arising with the advent of borrowed
funds in a balance passive, allowing to get additional net profit on own capital.
We will consider the mechanism of formation of effect of financial leverage on
the example of three organizations: №2, №3, №4 (tab. 8).
Table 8 - Formation of effect of financial leverage
№
1
2
3
4
5
Organizations
№2
№3
№4
The average sum of all used capital in the considered period, 5500,0 5500,0 5500,0
thousand tenges – all
From it - average sum of own capital
5500,0 3850,0 2750,0
Average sum of the loan capital, thousand tenges
0
1650,0 2750,0
The sum of gross profit (without expenses on payment of per- 1400,0 1400,0 1400,0
cent for the credit), thousand tenges
Coefficient of gross margin of assets (without expenses on pay20
20
20
Indicators
44
6
7
8
9
10
11
12
13
ment of percent for the credit), %
The average level of percent for the credit, %
12
12
12
The sum of percent for the credit paid for use of the loan capital,
0
198
330
thousand tenges [(col. 3 · col. 6) / 100]
The sum of gross profit of the organization taking into account 1400,0 1202,0 1070,0
expenses for payment of percent for the credit, thousand tenges
(col. 4 - col. 7)
The rate of income tax expressed by decimal fraction
0,3
0,3
0,3
Sum of income tax, thousand tenges (col. 8 · col. 9)
420,0 360,6
32,1
The sum of net profit, the organization being at the command 980,0 841,4 749,0
after payment of a tax, thousand tenges (col. 8 - col. 10)
Coefficient of profitability of own capital or coefficient of fi- 17,82 21,85 27,24
nancial profitability, % [(col. 11 · col. 2) / 100]
Gain of profitability of own capital in connection with use of the
0
2,4
5,6
loan capital, % (in relation to the organization №2)
Considering the provided data, it is possible to see that on the organization №2 the
effect of financial leverage is absent as it doesn't use the loan capital in the activity.
On the organization №3 this effect makes:
EFL = (1 - 0,3) · (20 - 12) · (1650,0 / 3850,0) = 2,4%.
Respectively on the organization 34 this effect makes:
EFL = (1 - 0,3) · (20 - 12) · (2750,0 / 2750,0) = 5,6%.
From results of the given calculations it is visible that the specific weight of borrowed funds in the total amount of the capital used by the organization is higher, the
she receives bigger profit level on own capital.
Considering earlier given formula of calculation of effect of financial leverage, it
is possible to allocate in it three main components:
1) the tax proofreader of financial leverage (1 - rcpt) who shows in what degree is
shown effect of financial leverage in connection with various level of the taxation of
profit;
2) differential of financial leverage (EPa - rk.av) which characterizes a difference
between coefficient of gross margin of assets and the average size of percent for the
credit;
3) coefficient of financial leverage (LC / OC) which characterizes the sum of the
loan capital used by the organization counting on unit of own capital.
Allocation of these components allows to operate purposefully effect of financial
leverage in the course of financial activity of the organization.
The tax proofreader of financial leverage practically doesn't depend on activity of
the organization as the rate of income tax is established legislatively. At the same
time, in process of management of financial leverage the differentiated tax proofreader can be used in the following cases:
• if on different types of activity of the organization the differentiated profit taxation rates are established;
• if on separate kinds of activity the organization uses tax privileges on profit.
In these cases, influencing branch or regional structure of production (and respectively and on structure of profit on the level of its taxation), it is possible having lowered to raise an average rate of the taxation of profit impact of the tax proofreader of
45
financial leverage on its effect. The differential of financial leverage is the main condition forming a positive effect of financial leverage. This effect is shown only if the
level of the gross profit generated by assets of the organization exceeds an average
interest rate on the utilized credit (including not only its direct rate, but also other
specific expenses on its attraction, insurance and service). The positive value of differential of financial leverage is higher, the its effect will be higher with other things
being equal.
Due to the high dynamism of this indicator he demands continuous monitoring in
process of management of effect of financial leverage. This dynamism is caused by a
number of factors. First of all, during deterioration of an environment of the financial
market (generally reductions of volume of the offer on it a spare capital) the cost of
borrowed funds can sharply grow, having exceeded the level of the gross profit generated by assets of the organization.
Besides, decrease in financial stability of the organization in the course of increase of a share of the used loan capital leads to increase in risk of its bankruptcy
that compels creditors to increase percent rate level for the credit taking into account
inclusion in it of an award for additional financial risk. At a certain level of this risk
(and respectively and the level of the general rate of percent for the credit) the differential of financial leverage can be brought to naught (at which use of the loan capital
won't give a gain of profitability of own capital) and even to have the negative size
(at which profitability of own capital will decrease as the part of the net profit generated by own capital will leave on service of the used loan capital at the high rates of
percent).
At last, during deterioration of an environment of the commodity market the volume of product sales, and respectively and the size of gross profit of the organization
on operating activities is reduced. In these conditions the negative size of differential
of financial leverage can be formed even at invariable rates of percent for the credit
due to decrease in coefficient of gross margin of assets.
Formation of negative value of differential of financial leverage on any of the
above-stated reasons always leads to decrease in coefficient of profitability of own
capital. In this case use of the loan capital by the organization gives a negative effect.
The coefficient of financial leverage is that lever which gears up the positive or
negative effect gained due to the corresponding value of differential. At positive value of differential any gain of coefficient of financial leverage will cause still a bigger
gain of coefficient of profitability of own capital, and at negative value of differential
the gain of coefficient of financial leverage will result in even bigger rate of decrease
in coefficient of profitability of own capital.
Thus, at invariable differential the coefficient of financial leverage is the main
generator as increases of the sum and profit level on own capital, and financial risk of
loss of this profit, that is in certain cases the price of attraction of the loan capital can
be higher, than the price of attraction of the capital from own sources.
Control questions
1. On what the direct method of an assessment of cash flows is based?
46
2. What does the direct method give estimates of cash flows?
3. How the rest of money by a direct method pays off?
4. How the sum of a pure cash flow calculates from operating activities at a direct
method?
5. What includes algorithm of recalculation at a direct method of an assessment of
cash flows?
6. In what complexity of a direct method of an assessment of cash flows?
7. In what essence of an indirect method of an assessment of cash flows?
8. How ChDP in a general view by an indirect method pays off?
9. How ChDP calculates from operating activities by an indirect method?
10. How corrections of net profit at an indirect method are subdivided?
11. What operations it is expedient to carry out for calculation of a gain or decrease in money from operating activities at an indirect method?
12. How to exclude influence of profit and the losses received not from operating
activities at an indirect method?
13. How influence of non-monetary articles on the size of a cash flow at an indirect method is defined?
14. What includes algorithm of formation of cash flows at an indirect method?
15. What it must be kept in mind at an assessment of pure cash flows by an indirect method?
16. How preparation of the report on cash flow on the basis of an indirect method
is made?
17. What is understood as a liquid cash flow?
18. What such financial leverage?
19. What represents algorithm of a liquid cash flow?
20. What the organization at positive value of effect of financial leverage has?
Tests
1. The report on cash flow is formed by two methods:
a) by a direct method and by method of charges;
b) by a direct method and indirect;
c) simple and detailed;
c) mathematical and analytical.
2. The assessment of cash flow by an indirect method assumes:
a) definition of inflow (outflow) of money by each type of activity;
b) definition of interrelation between financial result and cash flow;
c) definition of financial result of activity of the organization.
3. When using an indirect method of an assessment of cash flows it is corrected:
a) receivables rest sum;
b) the sum of the rest of money for the end of the period;
c) the sum of net profit for the analyzed period
4. The indirect method of the analysis of money allows:
a) to define coefficients of financial stability of the organization;
b) to estimate structure of positive and negative cash flows;
47
c) to give an assessment of the reasons of discrepancy of sizes of net profit and a
pure cash flow for the analyzed period
5. When using an indirect method of the analysis of cash flows the increase in the
rest of receivables for the period is necessary:
a) to add to the sum of net profit;
b) to subtract from the sum of net profit;
c) to leave an indicator of net profit without change.
6. The direct method of the analysis of cash flows allows:
a) to establish sufficiency of a pure cash flow on operating activities for financing
of investment investments;
b) to estimate efficiency of investment activity;
c) to calculate influence of factors on formation of profit on realization.
7. When using an indirect method of the analysis of cash flows reduction of the
rest of debt on the credits for the period is necessary:
a) to add to the sum of net profit;
b) to subtract from the sum of net profit;
c) to leave an indicator of net profit without change.
8. The gap between terms of payments according to obligations to suppliers and
receiving money from buyers characterizes duration:
a) production operating cycle;
b) financial cycle;
c) operational cycle.
9. Inflow of money on operating activities is formed:
a) the obtained long-term credits and loans;
b) the advance payments received from buyers and customers;
c) dividends and percent on short-term financial investments.
10. On an assessment method in time distinguish:
a) pure cash flow;
b) real cash flow;
c) scarce cash flow.
11. The operational rest of monetary assets is formed on purpose:
a) ensuring the current payments connected by production and commercial activity of the organization;
b) insurance of risk of untimely receipt of money from operating activities;
c) implementation of effective short-term financial investments.
12. Duration of a turn of money can be reduced for the account:
a) increases in duration of a turn of inventory items;
b) reductions of duration of a turn of receivables;
c) reductions of a cycle time
13. What positions correspond to the concept «stream»?:
a) payment of the arrived raw materials and materials;
b) debt of the organization for payment of a salary;
c) payment of awards;
d) payment of dividends;
e) the rest of money for the beginning of the period.
48
14. How the type of the analysis of cash flows directed on the solution of a priority financial problem is called?
a) the thematic;
c) the focused;
b) the quick;
d) the local.
15. The form 3 «Report on cash flow» in Kazakhstan is formed:
a) by a direct method;
b) by an indirect method;
c) the matrix.
49
3. ANALYSIS OF ABSOLUTE MEASURES OF CASH FLOWS
3.1. Horizontal analysis of cash flows
The horizontal analysis of cash flows allows to calculate and estimate absolute
changes and growth rates of the remains of money for the end of the period in comparison with its beginning in two years (previous and reporting). Besides, under each
article of receipt and payments of money in a section of each kind of activity dynamics of their inflow and outflow is estimated. A basis of this method is the analysis of
all indicators under each separately taken analytical article.
In a control system of cash flows the greatest distribution was received by the following types of the horizontal analysis:
• the analysis of dynamics of indicators of a cash flow of the reporting period in
comparison to indicators of the previous period (for example, with indicators of the
previous month, quarter, year);
• the analysis of dynamics of indicators of a cash flow of the reporting period in
comparison to indicators of the similar period of last year (for example, indicators of
the second quarter of the reporting period with similar indicators of the second quarter of the previous year). This type of the horizontal analysis is applied in the organizations with pronounced seasonal features of economic activity;
• the analysis of dynamics of indicators of a cash flow for a number of the previous periods. The purpose of this type of the analysis is identification of a tendency of
change of the separate indicators characterizing results of functioning of monetary
assets of the organization (definition of the line of a trend in dynamics).
All types of the horizontal analysis of cash flows are supplemented usually with
research of influence of separate factors on change of the corresponding productive
indicators. Results of such analytical research allow to construct the corresponding
dynamic factorial models which are used then in the course of planning of cash flows
of the organization.
In the horizontal analysis use two approaches:
1) comparison change in absolute values (for example, tenge);
2) comparison of changes in relative (percentage) sizes.
As a rule, in the report the analyst uses both approaches. Thus as more evident
approach the analysis of change as a percentage to previous (or to the first) to the period acts.
Further, based on data of the carried-out analysis, optimization of cash flows is
performed. That will allow to reveal and eliminate the reasons of negative or too big
cash flow. In case a cash flow negative, all available means can depreciate as a result
of inflationary processes. And in case of too large sum of a pure cash flow, the organization risks to be insolvent as there will be an acute shortage of financial resources.
We will make the analysis of dynamics of volume of cash flows on the basis of
information of a form 3 «Report on cash flow (a direct method)» of the organization
№5 with drawing up analytical table 9.
50
Table 9 - Analysis of dynamics of volume of cash flows
Change
(+, -)
Growth
rate, %
The rest of money for the begin+139,06
ning of year
I. Cash flow from operating activities
Receipt of money - all,
8406,75
10827,69 +2420,94
including:
- product sales
2844,53
7895,83
+5051,30
- realization of fixed assets
181,98
33,14
-148,84
- realization of other long-term
8,41
-8,41
assets
- the earned rewards
376,76
863,52
+486,76
- other receipts
4995,07
2035,20
-2959,87
Leaving of money - all,
8400,72
9786,68
+1385,96
including:
- payments to suppliers for produc- 2386,69
4182,27
+1795,58
tion
- payments for compensation
1388,36
1571,32
+182,96
- calculations for taxes and fees
1076,20
1432,66
+356,46
- other payments
3549,47
2600,43
-949,04
Cash flow from operating activi6,03
1041,01
+1034,98
ties
II. Cash flow from investment activity
Receipt of money
Leaving of money
Cash flow from investment activity
III. Cash flow from financial activity
Receipt of money - all,
462,71
-462,71
including:
- the obtained loans
462,71
-462,71
Leaving of money - all,
329,68
40,67
-289,01
including:
- repayment of loans
329,68
40,67
-289,01
Cash flow from financial activity
133,03
-40,67
-173,70
Pure cash flow
139,06
1000,34
+861,28
The rest of money on the end of
185,46
1185,80
+1000,34
the year
399,70
Rate of
a gain,
%
299,70
128,80
28,80
277,58
18,21
-
177,58
-81,79
-100,00
229,20
40,74
116,50
129,20
- 59,26
16,50
175,23
75,23
113,18
133,12
73,26
17264
13,18
33,12
- 26,74
17164
-
-
-
-100,00
12,34
-100,00
- 87,66
12,34
-30,57
719,36
639,38
- 87,66
-130,57
619,36
539,38
Indicators
Sum of the monetary
streams, million tenges
2012
2013
46,40
185,46
On the basis of data of table 9 dynamics of cash flows with calculation of absolute
deviations, growth rates and rates of a gain is studied, tendencies of change of cash
flows are established. Growth rates of a pure cash flow are compared with growth
rates of assets and growth rates of volume of product sales. The analysis allows to
study dynamics of volume of formation of a positive, negative and pure cash flow in
a section of separate sources.
51
For the analyzed period the positive cash flow tended to increase in the absolute
value. In 2012 it made 8869,46 million tenges, and in 2013 - 10827,69 million tenges,
i.e. rate of a gain made 22,08%. Dynamics of change of a negative cash flow (outflow
of means) also keeps a tendency to increase. (in 2012 - 8730,40 million tenges, in
2013 - 9827,35 million tenges). However its growth rates it′s slightly less, than for a
positive stream. This fact allowed to increase the sum of funds of the organization
from 185,46 million tenges by the beginning of the period to 1185,80 million tenges
for the end of 2011.
As a result of implementation in 2013 of financial and economic activity the organization №5 significantly increased the volume of money supply in part as receipts
of money, and their outflow. This situation can be assessed positively as it is a consequence of growth of scales of production and product sales. The positive moment –
excess of inflow of money over their outflow which provided achievement of positive
value of a pure cash flow of 1000,34 million tenges. The sum of a positive cash flow
in 2013 increased in comparison with 2012 by 1958,23 million tenges, rate of a gain
made 22,08%. Value of a negative cash flow increased for 1096,95 (1385,96 289,01) million tenges, or for 12,56%.
Considering indicators of cash flows on kinds of activity, it should be noted that
the greatest volume of money supply is provided by operating activities of the organization. The sum of inflow of money from this kind of activity in 2013 made
10827,69 million tenges that for 2420,94 million tenges it is more than in previous
year. Specific weight of this indicator in a total amount of all monetary receipts made
100% in 2013.
Comparison of data of inflow and outflow of money from operating activities testifies to the available excess of inflow over outflow in 2012 for the sum of 6,03 million tenges, in 2013 – for the sum of 1041,01 million tenges. It can be considered the
positive fact as operating activities have to provide a condition of sufficiency of money for implementation of operations on investment and financial activity.
Outflow of money from operating activities in 2013 increased in comparison with
2012 for 1385,96 million tenges, rate of a gain made 16,50% that is quite blocked by
a large increase of inflow of money on this kind of activity. The pure cash flow in
2012 made 139,06 million tenges, and in 2013 - 1000,34 million tenges, that is increased by 7,2 times.
It should be noted that at excess of inflow of money over outflow from operating
activities in 2013 the organization №5 didn't carry out operations in investment and
financial activity.
Further we will carry out the analysis of dynamics of assets of the organization,
volumes of realization of goods and services and a pure cash flow, having compared
rates of a gain according to assets, production (realization) of production with rates of
a gain of a cash flow (tab. 10).
Table 10 - Growth rates of assets, volumes of product sales and pure cash flow
Indicator
Sum of a cash flow,
million tenges
2012 г.
2013 г.
52
Change
(+, -)
Growth rate,
%
Total assets of the organization
Proceeds from sales of production
Pure cash flow
11752,53
2844,53
139,06
13008,97
7895,83
1000,34
+1256,44
+5051,30
+861,28
110,69
277,58
719,36
For normal functioning of the organization and increase of its financial stability
and solvency it is required that growth rates of volumes of product sales were above
growth rates of assets, and growth rates of a pure cash flow advanced growth rates of
volume of realization. In 2013 this dependence was carried out completely. That fact
that growth rates of a pure cash flow by 2,6 times exceed growth rates of realization,
positively influences solvency.
3.2. Vertical analysis of cash flows
The vertical analysis of cash flows allows to gain an evident impression about
what share make this or that income and expenses in the total amount of the income
and expenses that allows to judge extent of their influence on activity of the organization. In the course of this analysis as a part of the general cash flow allocate cash
flows from operating, investment and financial activities of the organization. Results
of the vertical analysis usually are also made out graphically.
In a control system of cash flows the greatest distribution was received by the following types of the vertical analysis:
• structural analysis of cash flows of the organization for types of economic activity (operational, investment and financial). It allows to establish a share of each kind
of activity in formation entering, proceeding and a pure cash flow. Studying of structure of a cash flow on separate sources and uses of money gives the chance to establish a share of each of them in formation of a cash flow on the organization in general;
• the structural analysis of cash flows on internal divisions of the organization
(«the centers of responsibility»). Results of this analysis form base of carrying out the
subsequent profound comparative and factorial analysis of efficiency of formation of
cash flows of the organization;
• the structural analysis of a positive (negative) cash flow on separate elements of
its formation. Such analysis allows to reveal the major making elements of formation
of positive or negative cash flows of the organization taking into account specifics of
its financial and economic activity.
When carrying out the vertical analysis the whole part is equated to 100%, and the
specific weight of each component is estimated. As the whole parts results of balance,
the profit and loss report, report on cash flow act.
The analysis of structure and structure of cash flows on kinds of activity (operational, investment, financial) we will carry out on the example of the organization
№6. For this purpose we will use table 11 made on the basis of a form 3 «Report on
cash flow» (a direct method).
53
Table 11 - The vertical analysis of cash flows on kinds of activity
Indicator
2012
thousand
tenges
404
%
2013
thousand
%
tenges
84
-
The rest of money for the beginning
of year
I. Cash flow from operating activities
1. Receipt – all,
26488
100
24348
including:
proceeds from sales of production
26472
99,94
24304
other income
16
0,06
44
2. Leaving – all,
24888
100
23200
including:
- on payment of production
18880
75,86
16976
- on compensation
3188
12,81
3788
- calculations for taxes and fees
1060
4,26
852
- other expenses
1760
7,07
1584
3. Pure cash flow
1600
1148
II. Cash flow from investment activity
4. Receipt
5. Leaving
6. Pure cash flow
III. Cash flow from financial activity
7. Receipt – all,
6000
including:
- loans and credits
6000
8. Leaving – all,
1920
100
7188
including:
- short-term financial investments
1920
100
7188
9. Pure cash flow
-1920
100
-1188
10. Total pure increase (+), reduc-320
-40
tion (-) money
The rest of money on the end of the
84
44
yea
Changes (+, -)
thousand
%
tenges
-320
-
100
-2140
-
99,82
0,18
100
-2168
+28
-1688
-0,12
+0,12
-
73,17
16,33
3,67
6,83
-
-1904
+600
-208
176
-452
-2,69
+3,52
-0,59
-0,24
-
-
-
-
100
+6000
+100
100
100
+6000
+5268
+100
-
100
-
+5268
+732
+280
-100
-
-40
-
-
From table 11 it is visible that the means received from buyers, customers
(99,82%) were the main source of receipt of money from operating activities in 2013.
An additional source of money this year were the other income (0,18%). Among articles of an expenditure of money article of payment of the acquired production
(73,17%) became prevailing, it is also necessary to allocate expenses on compensation (16,3%), calculations for taxes and fees (3,67%) and an other expenses (6,83%).
Pure inflow of money from operating activities by results of 2013 made 1148 thousand tenges that is less than an indicator of 2012 for 452 thousand tenges. In a section
of investment activity in the organization No. 6 there was no cash flow.
Proceeding from data of the analysis, it is possible to draw a conclusion that use
of borrowed funds by the organization in 2013 positively affected increase in a cumulative cash flow (+6000 thousand tenges).
54
The cumulative result characterizing change of money in the organization consists
of the sum of results of their movement on each kind of activity. Pure reduction of
money for 2013 made 40 thousand tenges that for 280 thousand tenges there is more
than total amount of outflow of money in 2010 (-320 thousand tenges). Influence of
factors is estimated on the sums of pure money on kinds of activity.
3.3. Matrix method of the analysis of cash flows
One of the main methods of the analysis of cash flows is the matrix method. Matrix models found broad application in the field of forecasting and planning of cash
flows of the organization.
The matrix model represents the rectangular table which elements reflect interrelation of objects. It′s convenient for the financial analysis as is a simple and evident
form of combination of diverse, but interconnected economic events.
The matrix balance is derivative of a standard form of balance of the organization
which the table where there will be articles of a passive across can present easily in
the form, and down – assets. Dimension of a matrix of the balance sheet can correspond to number of assets and a passive, but for practical purposes there is enough
dimension 10х10 in the reduced balance form.
Matrix balances allow:
- to define coordination of assets and articles of a passive of balance;
- to calculate structure and to determine quality of assets by balance of the organization and sufficiency of sources of their financing;
- to calculate all set of indicators and the coefficients necessary for an assessment
of financial stability, solvency, use of resources of the organization;
- objectively to estimate a financial position of the organization, to find out the
reasons of its change for the reporting period;
- to establish the parameters characterizing approach of the organization to an insolvency threshold.
Creation of matrix balance includes some stages:
1) a balance matrix size choice depending on the available purposes of its subsequent use. The matrix balance has a statistical property and shows a condition of
funds for the beginning and the end of the period;
2) transformation of standard balance of the aggregated balance by the chosen matrix size;
3) creation of a matrix of balance and filling of total lines and columns in strict
accordance with the aggregated balance;
4) selection of sources of the means which are at the disposal of the organization
according to the rule of «gold financing»;
5) calculation and check of balance results in a matrix;
6) creation of the differential (dynamic) matrix balance reflecting change of money for the period which results can be used for expected and analytical calculations.
55
Now, heads of the organizations face a problem of efficiency of financing of assets. Each group of assets has certain regularities of financing. These regularities are
reflected in the standard rules of «gold financing»:
- financial resources, necessary for investments, have to be at the disposal of the
organization until they remain connected as a result of implementation of these investments;
- «golden rule» of management of accounts payable of the organization consists in
the greatest possible increase in a repayment period without damage of violation of
the developed business relations.
The most responsible and difficult in creation of matrix balance is the stage of selection of sources of the means which are at the disposal of the organization according to the rule of «gold financing». Regularities of financing of various groups of assets of the organization are reflected in this rule.
Competent financing of assets is expressed in the following:
1) financial resources, necessary for investments, have to be at the disposal of the
organization until they remain connected as a result of implementation of these investments. Understand the volume of financial resources which constantly has to
have the organization for ensuring smooth functioning of the operating activities as
the connected resources;
2) for management of accounts payable of the organization «gold financing» consists in the greatest possible increase in a repayment period without damage of violation of the developed business relations.
Practical application of «golden rule» is expressed in a strict regulation of sources
of financing of assets of the organization and an order of their use. Selection of
sources of financing is carried out in the sequence given in table 12 within the rest of
money after providing at the expense of this source of the previous assets, and attraction of each subsequent source speaks about some decline in quality of financial security of the organization.
Table 12 - Order of financing of assets of the organization
Assets
1. Краткосрочные активы
1.1. Money
1.2. Short-term debit debt
1.3. Stocks
1.4. Short-term financial investments
Liabilities
1. Short-term accounts payable
2. Short-term loans
3. Current tax obligations
4. Reserves
5. Retained earnings
1. Short-term accounts payable
2. Short-term loans
3. Current tax obligations
1. Short-term accounts payable
2. Long-term accounts payable
3. Short-term loans
4. Long-term loans
5. Retained earnings
1. Short-term accounts payable
2. Long-term accounts payable
56
3. Reserves
2. Long-term assets
2.1. Long-term debit debt
2.2. Fixed assets and intangible assets
2.3. Long-term financial investments
1. Short-term accounts payable
2. Long-term accounts payable
3. Short-term loans
4. Long-term loans
1. Long-term loans
2. Authorized (joint-stock) capital
3. Issue income
4. Retained earnings
1. Long-term loans
2. Authorized (joint-stock) capital
3. Issue income
4. Retained earnings
Calculation of cash flows with use of a matrix method is presented in tables 13 15.
Table 13 - The aggregated balance
Name of articles
For the beginning
period
For the end
period
Change
(+, -)
48
160
280
16
504
648
648
1152
68
240
336
24
668
760
760
1428
20
80
56
8
164
112
112
276
160
16
48
224
256
256
320
352
672
1152
140
12
88
240
360
360
380
448
828
1428
20
4
40
16
104
104
60
96
156
276
Assets
1. Money
2. Short-term receivables
3. Stocks
4. Expenses of future periods
5. Total short-term assets
6. Fixed assets
7. Total long-term assets
Balance
Liabilities
1. Short-term accounts payable
2. Percent to payment
3. Taxes
4. Total short-term obligations
5. Bonds for payment
6. Total long-term obligations
7. Common stocks
8. Retained earnings
9. Total capital
Balance
57
Table 14 - Matrix balance
Liabilities
Short-term
creditor
debt
Percent to
payment
Current
tax obligations
Bonds to
payment
Total obligations
The
ordinary
actions
Not
shared
profit
Total
capital
Balance
-
-
48
68
-
48
68
-
-
-
48
68
160
140
-
-
100
160
240
-
-
-
160
240
-
16
12
20
256
260
272
292
44
8
-
8
44
280
336
-
-
-
-
-
24
16
-
16
24
16
24
160
140
16
12
48
88
256
360
480
600
68
24
-
24
68
504
668
-
-
-
-
-
320
312
328
448
648
760
648
760
-
-
-
-
-
320
312
328
448
648
760
648
760
160
140
16
12
48
88
256
360
480
600
320
380
352
448
672
828
1152
1428
Assets
Money:
• for the beginning of the period
• for the end of the period
Short-term debit debt:
• for the beginning of the period
• for the end of the period
Stocks:
• for the beginning of the period
• for the end of the period
Expenses of future periods:
• for the beginning of the period
• for the end of the period
Total short-term assets:
• for the beginning of the period
• for the end of the period
Fixed assets:
• for the beginning of the period
• for the end of the period
Total long-term assets:
• for the beginning of the period
• for the end of the period
Balance:
• for the beginning of the period
• for the end of the period
Table 15 - Differential (dynamic) balance
Liabilities
Short-term
creditor debt
Percent
to payment
Current tax
obligations
Bonds
to payment
Total obligations
The
ordinary
actions
Not
shared
profit
Total
capital
Balance
-20
-20
-20
-4
-4
-4
20
20
40
40
100
4
104
104
20
80
20
120
120
44
24
68
-8
-8
60
-8
-16
-24
120
120
96
36
8
44
112
112
156
20
80
56
8
164
112
112
276
Assets
Money
Short-term debit debt
Stocks
Expenses of future periods
Total short-term assets
Fixed assets
Total long-term assets
Balance
59
Control questions
1. On what the horizontal analysis of cash flows is based?
2. What pays off in the course of use of the horizontal analysis?
3. What is object of the horizontal analysis?
4. What types of the horizontal analysis of cash flows are widespread in a control
system?
5. In what essence of research of dynamics of indicators of a cash flow of the reporting period in comparison to indicators of the previous period?
6. In what essence of research of dynamics of indicators of a cash flow of the reporting period in comparison to indicators of the similar period of last year?
7. Than the horizontal analysis of cash flows is supplemented?
8. What gives the horizontal analysis of cash flows?
9. On what the vertical analysis of cash flows is based?
10. What types of the vertical analysis of cash flows are widespread in a control
system?
11. In what essence of the structural analysis of cash flows of the organization for
types of economic activity (operational, investment and financial)?
12. In what essence of the structural analysis of cash flows on internal divisions of
the organization («the centers of responsibility»)?
13. What features the vertical analysis possesses?
14. In what advantages of the vertical analysis consist:
15. What does the matrix model represent?
16. In what essence of a matrix method of the analysis of cash flows?
17. What it′s possible to make by means of matrix model?
18. What stages are included by creation of matrix balance?
19. In what the analytical value of matrix balance?
20. What is the most responsible and difficult in creation of matrix balance?
Tests
1) What of the listed operations doesn't treat the movement of cash flows by
drawing up the report on cash flow?:
a) definition of pure cash flows from investment activity;
b) definition of pure cash flows from operating activities;
c) definition of pure cash flows from financial activity;
d) definition of pure cash flows from the movement of means on the settlement
account.
2. In what cases by drawing up the report on cash flow the «direct» and «indirect»
method is used?:
a) when determining cash flows from all kinds of activity;
b) when determining cash flows from financial activity;
c) when determining cash flows from operating activities.
60
3. The way of calculation of cash flows on what (them) to a type(s) of activity has
no essential differences when using direct and indirect methods according to IFRS?:
a) the operational;
b) the investment;
c) the financial.
4. Process of formation of own sources of monetary resources of the organization
is connected from it:
a) operating activities;
b) investment activity;
c) financial activity.
5. What of the listed operations aren't reflected in the consolidated report on cash
flow?:
a) return under the reporting sums;
b) encashment of money from the settlement account in cash desk of the organization;
c) cash flow between the head and affiliated organizations;
d) the advance payments returned by suppliers.
6. Call an element of cash flows on financial activity according to the Kazakhstan
standards:
a) means from sale of bonds of other issuers;
b) the means received from issue of bonds;
c) the funds allocated for acquisition of a controlling stake.
7. What from given below treats definition of cash flows by a direct method?:
a) correction of sales proceeds;
b) correction of prime cost of the realized production;
c) correction of net profit;
d) correction of operating expenses.
8. By drawing up the report on cash flow the indirect method makes the following
adjustments:
a) non-monetary expenses;
b) non-monetary short-term assets and obligations;
c) prime cost of the realized production;
d) other profits and losses.
9. What of the listed operations don't influence cash flow?:
a) receipts in cash desk;
b) repayment of advance payments;
c) write-off of hopeless receivables;
d) placement of shares in stock market;
e) converting of actions in the bond.
10. Outflow of money doesn't include:
a) repayment of receivables;
b) repayment of accounts payable;
c) the advance payments issued;
d) acquisition of means of long-term use.
61
11. Promotes increase in a pure current of money:
a) increase in cost of stocks of the organization;
b) increase in accounts payable of the organization;
c) increase in the sums of bills to receiving;
d) increase in the sums of the advance payments received.
12. Promotes reduction of a pure current of money:
a) reduction of cost of stocks of finished goods in a warehouse of the organization;
b) reduction of debt of founders on deposits to authorized capital;
c) reduction of debt by participants on payment of the income;
d) reduction of the sums of bills for payment.
13. Leads to inflow of money:
a) increase in short-term assets;
b) increase in short-term obligations;
c) increase in long-term assets;
d) increase in own capital at the expense of a share issue;
e) increase in expenses of future periods.
14. Leads to outflow of money:
a) increase in short-term assets;
b) reduction of long-term obligations;
c) payment of dividends;
d) repayment of own actions.
15. What of the given operations influences the size of money in the reporting period?:
a) announcement of dividends;
b) exchange difference;
c) write-off of hopeless debt;
d) repayment of accounts payable.
62
4. COEFFICIENT ANALYSIS OF CASH FLOWS
4.1. Analysis of liquidity of cash flows
The coefficient analysis is an integral part of the analysis of cash flows. It is based on
calculation of financial coefficients among themselves.
The financial coefficient is the relative indicator counted as the relation of separate
articles of balance and their combinations. By itself that, the balance sheet (form 1)
forms for the coefficient analysis information base.
In economic literature the coefficient analysis, as a rule, is understood as studying
and the analysis of financial statements by means of a set of financial performance (coefficients). Purpose of the coefficient analysis – to describe the organization for several
basic indicators which allow to judge its financial position.
When carrying out the coefficient analysis it is necessary to consider that that, the
normal or recommended values were defined on the basis of the analysis of activity of
the western companies and not adapted for the Kazakhstan conditions.
Besides it is necessary to treat a technique of comparison of coefficients with industry standards carefully. If in the developed countries the main proportions developed a
decade ago, there is a continuous monitoring of all changes, in Kazakhstan the market
structure of assets and liabilities of the organization is in a formation stage, monitoring
in full isn't conducted. And if to take distortions of the reporting, continuous updatings
of rules of its drawing up into account, it is clear that removal enough reasonable new
standards for branches is difficult.
By means of the coefficient analysis levels and their deviations from planned and
base-line values of various relative indicators characterizing cash flows are studied and
also coefficients of liquidity and efficiency of cash flows of the organization pay off. In
the course of use of this system of the analysis various relative indicators characterizing
separate indicators of cash flows, and extent of their influence on the general level of a
financial position of the organization are defined.
Important point in the coefficient analysis is the studying of dynamics of various coefficients allowing to establish the positive and negative tendencies reflecting quality of
management of cash flows of the organization and also to develop necessary actions for
introduction of the corresponding amendments for optimization of administrative decisions in the course of implementation of financial and economic activity.
We will carry out the analysis of cash flows with application of financial coefficients
(tab. 16).
Table 16 - Settlement data for a coefficient method of the analysis of cash flows
Indicator
Positive cash flow, thousand tenges
Positive cash flow from operating activities, thousand tenges
Negative cash flow, thousand tenges
Negative cash flow from operating activities, thousand tenges
Proceeds from sales of production, thousand tenges
Net profit, thousand tenges
Depreciation of fixed assets, thousand tenges
63
2012
2013
21998
19853
21996
20610
10099
626
12882
25597
23486
20658
18884
12568
148
47028
Change
(+, -)
+3599
+3633
-1338
-1726
+2469
-478
+34116
Gain (decrease) of receivables, thousand tenges
201
Gain of stocks of material short-term assets, thousand tenges
180
Gain of accounts payable, thousand tenges
228
Average size of own capital, thousand tenges
10286
Pure cash flow, thousand tenges
14117
Sum of money, thousand tenges
599
Average size of money, thousand tenges
720
Sum of short-term obligations, thousand tenges
1085
Sum of short-term financial investments, thousand tenges
0
Sum of short-term receivables, thousand tenges
217
Indicators of liquidity of cash flows
Coefficient of liquidity of a cash flow
1,00
Coefficient of absolute solvency
0,552
Coefficient of intermediate solvency
0,752
Coefficient of the current solvency
0,963
Indicators of efficiency of cash flows
Coefficient of security with money
12,751
Coefficient of sufficiency of a pure cash flow
78,43
Effectiveness ratio of a pure cash flow
0,642
Coefficient of profitability of a positive cash flow
0,028
Coefficient of profitability of a negative cash flow
0,028
Coefficient of profitability of average size of money
0,689
Coefficient of profitability of a pure cash flow
0,044
Coefficient of turnover of average size of money
14,03
37
466
461
13226
48140
1309
920
1660
0
350
-164
+286
+233
+2940
+34023
+710
+200
+575
0
+133
1,24
0,788
0,999
1,244
+0,24
+0,236
+0,247
+0,281
17,782
103,30
2,330
0,006
0,007
0,161
0,003
13,66
+5,031
+24,87
+1,688
-0,022
-0,021
-0,519
-0,041
-0,37
For calculation of necessary coefficients it is necessary to calculate an indicator of
a pure cash flow:
2012 of CFpur = 626 + 12882 + 201 + 180 + 228 = 14117 thousand tenges;
2013 of CFpur = 148 + 47028 + 37 + 466 + 461 = 48140 thousand tenges.
The pure cash flow in 2013 for 34023 thousand tenges is more than pure cash
flow of 2012 (48140 - 14117). This increase resulted from significant increase in
such indicators, as an accounts payable gain for 233 thousand tenges; a gain of stocks
of material short-term assets for 286 thousand tenges.
In the course of the analysis it is featured «quality of a pure cash flow» - the generalized characteristic of structure of sources of formation of this indicator. High
quality of a pure cash flow is characterized by growth of specific weight of the net
profit got due to increase in production of production, decrease in its prime cost, and
low - at the expense of the increase in a share of net profit connected with increase in
prices on production, implementation of non-operating operations, etc.
At the same time, it is necessary to investigate synchronism of formation of positive and negative cash flows in a section of separate intervals of the reporting period;
the dynamics of the remains of monetary assets of the organization reflecting the level of this synchronism and providing absolute solvency is considered. In the course of
the analysis of synchronism of formation of cash flows the liquidity coefficient pays
off.
The coefficient of liquidity of a cash flow made:
2012 Ccf = 21998 / 21996 = 1,00;
64
2013 Ccf = 25597 / 20658 = 1,24.
For ensuring necessary liquidity of a cash flow this coefficient has to matter not
lower than 1 (excess 1 will generate growth of the rest of monetary assets for the end
of the considered period, that is to promote increase of coefficient of absolute solvency of the organization).
In our case the rules are respected in 2012, however in 2013 considerable excess
of norm takes place.
The coefficient of solvency shows possibility of the organization to provide outflow of money with their receipt. As we see in 2013 the coefficient of the current solvency increased on 0,281 point and the organization has enough means for payment
of the short-term obligations.
The tendency of reduction of a share of money as a part of short-term assets of the
organization at the increasing volume of its short-term obligations serves as a barometer of emergence of financial difficulties. Therefore the analysis of a ratio of money
and short-term obligations can give a short-term picture of surplus or a lack of money
at an economic entity. In 2013 the coefficient of absolute solvency increased on 0,236
points, in connection with increase in inflow of money by 710 thousand tenges in
comparison with increase in volume of short-term obligations by 575 thousand tenges.
4.2. Analysis of efficiency of cash flows
Overall performance of the organization depends on many factors which can be
divided into the external, having impact regardless of interests organizations, and internal on which the organization can and has to influence actively. These factors can
be, both positive, and negative. The damage from these factors can be reduced at effective and correct use of money.
For an assessment of efficiency of use of money define indicators of sufficiency,
turnover and profitability of money. Indicators of turnover of money consider as indicators of liquidity of a cash flow which provide maintenance of constant solvency of
the organization. Turnover in days characterizes the period during which money is on
accounts of the organization without the movement. Such indicator allows to determine the size of the rest of money.
Indicators of profitability of money characterize, what size of a pure cash flow is
the share of one tenge of the money which is at the disposal (spent or received) to the
organization during the studied period. These indicators calculated on net profit need
to be determined as in general by the organization, and by kinds of activity. The profitability indicators calculated on profit allow to establish return of money, or, in other
words, to define economic effect of use of this type of means.
From table 16 it is visible that the coefficient of sufficiency of a pure cash flow in
2013 in comparison with 2012 increased on 24,87 (103,30 - 78,43). This fact says
that the organization has enough money for financing of the requirements.
65
To gain an impression about real cash flow in the organization, to estimate synchronism of receipts and payments, and also to coordinate profit to a condition of
money, it is necessary to allocate and analyse all directions of receipt of money, and
also their leavings.
The purpose of the analysis of cash flow – to estimate ability of the organization
to generate money in a size and in the terms necessary for implementation of the
planned expenses. Solvency and liquidity of the organization often are depending on
a real monetary turn in the form of a stream of the monetary payments passing
through accounts of an economic entity. Therefore the analysis of cash flow significantly supplements a technique of an assessment of liquidity and solvency and gives
the chance more objectively to estimate financial wellbeing of the organization.
The coefficient of turnover of money made:
2012 Ctm = 10099/720 = 14,03;
2013 Ctm = 12568/920 = 13,66.
Indicators of profitability of a cash flow in the considered period decreased. For
example, in 2013 the coefficient of profitability of a pure cash flow made 0,003, i.e.
is 0,041 less, than in 2012.
The coefficient of profitability of a positive cash flow in 2013 made 0,006 that is
2,2% less, than in 2012. Considerably also the coefficient of profitability of average
size of money – with 0,689 to 0,161 decreased.
As the generalizing indicator the effectiveness ratio of a pure cash flow which in
2013 in comparison with 2012 increased on 1,688 (2,330 - 0,642) was used. It means
that in 2012 cash flows were less effective, and in 2013 efficiency of cash flows increased.
As a result of the carried-out analysis it is revealed that in general money is used
inefficiently. For more effective use of money it is necessary to correct more precisely management of cash flows that will allow not to allow excessive accumulation of
money and to formation of their deficiency in separate temporary intervals.
Effectively to operate cash flow, it is necessary to know, what its size for this or
that period of time, what its basic elements, and what kinds of activity of the organization they are formed. The received conclusions can often be confirmed or disproved by the comparative analysis with use of a cash flow for a number of the periods. So, analyzing the growing, profitable organization, many right there conclude
that the organization prospers (that is in most cases fair). However, rapid growth,
even accompanied with receiving profit, is capable to result in insolvency as the need
of the organization for working capital can exceed its internal financial opportunities,
and need for external financing - its ability to loan.
4.3. Factorial analysis of cash flows
In the course of carrying out the analysis of cash flows the special attention is paid
to the factorial analysis, that is quantitative measurement of influence of various objective and subjective factors (reasons) making direct or indirect impact on change of
66
profitability, efficiency of use of funds of the organization in the analyzed period.
The factorial analysis (determined and stochastic) is carried out with use of various
methods of modeling of factorial systems.
The factorial analysis of cash flows allows to define influence of various factors
of financial and economic activity of the organization on a pure cash flow. He helps
to find negative tendencies in time and in due time to take adequate measures for prevention of possible negative financial consequences.
All factors influencing formation of cash flows can be divided on external and internal. Treat external factors: environment of the commodity and financial markets,
system of the taxation of the organizations, established practices of crediting of suppliers and buyers of production (rule of a business conduct), system of implementation of settlement operations of economic entities, availability of external sources of
financing (credits, loans, target financing).
It is necessary to distinguish a stage of life cycle at which there is an organization,
duration of operational and production cycles, seasonality of production and realization of goods and services, depreciation policy, urgency of investment programs, personal qualities and professionalism of a key element of the organization from internal
factors.
Factorial models allow to open, quantitatively to measure, analyse relationships of
cause and effect between various indicators which are comprehensively describing
economic activity of the organization. Besides, by means of factorial modeling expected (planned) indicators are formed, including the optimum sizes of cash flows of
the organization answering the purpose of achievement of maximum efficiency of financial and economic activity at the adequate level of financial risk are defined.
Action of factors which are expressed by the indicators which are composed an
indicator «Receipt of money» causes directly proportional change and the receipt
volume, and size of a pure cash flow. Action of factors which are expressed by the
indicators which are composed an indicator «Leaving of money» causes directly proportional change of volume of use of money, but inversely proportional change of
size of a pure cash flow.
At an action assessment for the sum of a pure cash flow of the factors defined by
specification of the income from product sales that is indirect, it is necessary to consider two moments.
First, indicators by which indirect factors are expressed, are formed by the principle of charge, and added doesn't mean the really executed. Therefore the increase in
those indicators which reflect the sums to receipt, means reduction of the final and
pure remains of money in the studied period because of a delay of real receipt of
these means, but their increase in the future and vice versa is possible.
Secondly, the factors expressed by the factorial indicators defining profit (loss) to
the taxation influence cash flows of the organization through income tax. Therefore
change of a pure cash flow due to action of these factors is disproportionate.
The factors influencing a deviation of a pure cash flow from net profit can be divided into two groups:
1) defining net profit;
67
2) defining a pure cash flow.
Both in that and in other group it is possible to allocate two more subgroups:
• the factors having direct dependence with the studied indicator;
• the factors having inverse relationship with the studied indicator.
One of stages of the factorial analysis of cash flows – calculation of influence of
factors on change of size of coefficient of profitability of a positive cash flow. Modeling this coefficient by means of methods of expansion, lengthenings and reductions it
is possible to receive six-factorial system:
Cp.cf.pos = [(1 - х1 - х2 - х3) · х4 · х5] / х6.
Values of the considered factors pay off on formulas:
х1 = Сс / P; x2 = MI / P;
х3 = DFA / P; x4 = P / Aas;
х5 = Mn.b / CFpos; x6 = Mn.b / Aas.
The first three factors – the indicators which are in inversely proportional dependence with profitability as decrease in relative level of an expense of capacity of production and product sales really has on it positive impact.
The fourth factor – turnover of short-term assets, has to stimulate undoubtedly
processes of effective business, including monetary turn.
The fifth and sixth factors - shares of the average rest of money in the total
amount of a positive cash flow and assets - reflect the level of efficiency of operating
activities of the organization, its ability to generate excess money supply for further
use on expansion of scales of business, investment activity.
Basic data for calculation of influence of six factors on a productive indicator
(profitability coefficient) are given in table 17.
Table 17 - Basic data for the factorial analysis of cash flows
Indicators
Proceeds from sales of production, thousand tenges
Compensation with charges, thousand tenges
Material inputs, thousand tenges
Depreciation charges, thousand tenges
Average size of assets, thousand tenges
Average rest of money, thousand tenges
Positive cash flow, thousand tenges
Salary capacity
Material capacity
Depreciation capacity
Turnover of assets
Share of the average rest of money in the total amount
of a positive cash flow
Share of the average rest of money in the total amount
of assets
Coefficient of profitability of a positive cash flow
2012
54444
8488
31580
1068
31212
892
6296
0,156
0,580
0,020
1,744
0,142
2013
45232
4140
15408
520
61976
-1216
22292
0,091
0,341
0,011
0,730
-0,054
Change (+, -)
-9212
-4348
-16172
-548
+30764
-2108
+15996
-0,065
-0,239
-0,009
-1,014
-0,196
0,028
-0,020
-0,048
2,158
1,098
-1,060
We will carry out the factorial analysis of coefficient of profitability of a positive
cash flow. We will determine influence of factors on it a salary of capacity, a material
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capacity, turnover of the capital, a share of the average rest of money in a positive
cash flow and shares of the average rest of money in the total amount of the capital
by way of chain substitutions.
Calculation of influence of factors on change of coefficient of profitability of positive cash flows in 2013 in comparison with 2012:
Cp.cf.pos2012 = [(1 - х1.2012 - х2.2012 - х3.2012) · х4.2012 · х5.2012] / х6.2012 = [(1 - 0,156 0,580 - 0,020) · 1,744 · 0,142] / 0,028 = 2,158;
Cp.cf.pos1 = [(1 - х1.2013 - х2.2012 - х3.2012) · х4.2012 · х5.2012] / х6.2012 = [(1 - 0,091 - 0,580
- 0,020) · 1,744 · 0,142] / 0,028 = 2,733;
Cp.cf.pos2 = [(1 - х1.2013 - х2.2013 - х3.2012) · х4.2012 · х5.2012] / х6.2012 = [(1 - 0,091 - 0,341
- 0,020) · 1,744 · 0,142] / 0,028 = 4,847;
Cp.cf.pos3 = [(1 - х1.2013 - х2.2013 - х3.2013) · х4.2012 · х5.2012] / х6.2012 = [(1 - 0,091 - 0,341
- 0,011) · 1,744 · 0,142] / 0,028 = 4,926;
Cp.cf.pos4 = [(1 - х1.2013 - х2.2013 - х3.2013) · х4.2013 · х5.2012] / х6.2012 = [(1 - 0,091 - 0,341
- 0,011) · 0,730 · 0,142] / 0,028 = 2,062;
Cp.cf.pos5 = [(1 - х1.2013 - х2.2013 - х3.2013) · х4.2013 · х5.2013] / х6.2012 = [(1 - 0,091 - 0,341
- 0,011) · 0,730 · (-0,054)] / 0,028 = -0,784;
Cp.cf.pos2013 = [(1 - х1.2013 - х2.2013 - х3.2013) · х4.2013 · х5.2013] / х6.2013 = [(1 - 0,091 0,341 - 0,011) · 0,730 · (-0,054)] / (-0,020) = 1,098.
Thus, decrease in coefficient of profitability of cash flows on 3,247 points [-1,086
- 2,161)] was result of influence of the following factors:
а) salary capacity
ΔCp.cf.pos (х1) = Cp.cf.pos1 - Cp.cf.pos2012 = 2,733 - 2,158 = 0,575;
b) material capacity
ΔCp.cf.pos (х2) = Cp.cf.pos2 - Cp.cf.pos1 = 4,847 - 2,733 = 2,114;
c) depreciation capacity
ΔCp.cf.pos (х3) = Cp.cf.pos3 - Cp.cf.pos2 = 4,926 - 4,847 = 0,079;
d) turnover of assets
ΔCp.cf.pos (х4) = Cp.cf.pos4 - Cp.cf.pos3 = 2,062 - 4,926 = -2,864;
e) share of the average rest of money in the total amount of a positive cash flow
ΔCp.cf.pos (х5) = Cp.cf.pos5 - Cp.cf.pos4 = -0,784 - 2,062 = -2,846;
f) share of the average rest of money in the total amount of assets
ΔCp.cf.pos (х6) = Cp.cf.pos2013 - Cp.cf.pos5 = 1,098 - (-0,784) = 1,882.
In total 1,060 points.
Apparently from calculations, influence of the factors included in analytical model was both positive, and negative. Factors of a salary capacity, a material capacity, a
depreciation capacity, a share of the average rest of money in the total amount of assets are positive to number of the affected factors on change of coefficient of profitability of cash flows in 2013 in comparison with 2012.
Factors of turnover of assets and share of the average rest of money in the total
amount of a positive cash flow are negative to number of the affected factors on
change of coefficient of profitability of cash flows in 2013. In particular, decrease in
turnover of assets on 1,014 points, lowered coefficient of profitability of cash flows
on 2,864 points.
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Thus, factorial models allow to open, quantitatively to measure, analyse relationships of cause and effect between various indicators which are comprehensively describing economic activity of the organization. Besides, by means of factorial modeling expected indicators are formed, including the optimum sizes of cash flows of the
organization answering the purpose of achievement of maximum efficiency of economic activity at the adequate level of financial risk are defined.
Control questions
1. In what essence of the coefficient analysis?
2. What coefficient pays off in the course of the analysis of synchronism of formation of cash flows?
3. How liquidity coefficients are defined?
4. What shows solvency coefficient?
5. What coefficients of profitability are defined in the analysis of efficiency of
cash flows?
6. In what a main goal of the analysis of cash flow?
7. What coefficients are studied within the analysis of efficiency of cash flows?
8. In what essence of the factorial analysis?
9. What purposes and tasks of the factorial analysis?
10. What represents the determined factorial analysis?
11. What represents the stochastic factorial analysis?
12. How it is possible to divide the factors influencing formation of cash flows?
13. What it is necessary to study to gain an impression about real cash flow in the
organization?
14. How to define coefficient of turnover of money in the organization?
15. What it is possible to carry to external factors?
16. What factors belong to the internal?
17. What opportunities factorial models possess?
18. What it is necessary to consider at an action assessment for the sum of a pure
cash flow of factors?
19. How it is possible to classify the factors influencing a deviation pure cash
flow from net profit?
20. What technology of the factorial analysis in the way of chain substitutions?
Tests
1. Effectiveness ratio of use of money is:
a) profit relation to the cost of property of the organization;
b) the relation of a pure cash flow on operating activities to the size of a negative
cash flow on operating activities of the organization;
c) relation of proceeds from sales to a pure cash flow of the organization.
2. Testifies to activity of investment activity of the organization:
a) negative value of a pure cash flow on investment activity;
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b) positive value of a pure cash flow on investment activity;
a) positive value of a pure cash flow on financial activity.
3. What from the given reduces the size of net profit when determining a pure
cash flow from operating activities?:
a) expenses on depreciation;
b) increase in receivables;
c) reduction of stocks;
d) reduction of accounts payable;
e) the written-off receivables;
e) the written-off accounts payable.
4. What factors promote increase in a pure cash flow on operating activities?:
a) increase in investments;
b) increase in disinvestment;
c) increase in financing;
d) financing reduction.
5. On the basis of data on what cash flows the effectiveness ratio of cash flows is
estimated?:
a) only the gross;
b) only the pure;
c) gross and pure.
6. At calculation of coefficient of Biver the indicator is used:
a) cumulative pure cash flow;
b) a pure cash flow on operating activities;
c) active self-financing;
d) hidden financing.
7. Call a veracious statement:
a) the financial cycle is part of an operational cycle;
b) the operational cycle is part of a financial cycle;
c) the financial cycle doesn't depend on an operational cycle.
8. How to calculate a financial cycle?:
a) Receivables turn period + accounts payable turn Period;
b) Receivables turn period - the accounts payable turn Period;
c) The period of a turn of stocks + receivables turn Period - the accounts payable
turn period;
d) An operational cycle - the accounts payable turn Period.
9. Increase in duration of the period of finding of means in advance payments of
buyers:
a) increases a credit cycle;
b) reduces a credit cycle;
c) doesn't influence a credit cycle.
10. Increase in need for additional financing of operating activities;
a) it is connected with reduction of a credit cycle;
b) it is connected with increase in a credit cycle;
c) it isn't connected with change of a credit cycle.
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11. What of indicators are used by a formula of calculation of the current financial
requirements on the basis of data of balance?:
a) assets;
b) short-term assets;
c) fixed assets;
d) money;
e) short-term credits and loans;
e) long-term credits and loans.
12. At write-off on financial results of receivables claimed taxable profit:
a) increases;
b) decreases;
a) doesn't change.
13. How the reserve under depreciation of financial investments is reflected in the
balance sheet?:
a) increases the sum of financial investments;
b) reduces the sum of financial investments;
c) increases the sum of the reserve capital;
d) reduces the sum of the reserve capital.
14. The average term of a turn of receivables is determined by a formula:
a) Number of days in the period / the Average size of receivables;
b) Number of days in the period/Coefficient of turnover of receivables;
c) Average size receivables / Number of calendar days in the period.
15. Join in article of balance «Accounts payable»:
a) the advance payments received;
b) the advance payments issued;
c) bills to receiving;
d) bills to payment.
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5. INTEGRATED ANALYSIS OF CASH FLOWS
5.1. Du Pont system analysis of cash flows
The Du Pont system of the analysis of cash flows developed by Du Pont firm
(USA) provides decomposition of an indicator «coefficient of profitability of money2
on a number of the private financial coefficients of its formation interconnected in
uniform system. It is possible to tell that profitability of assets - the indicator derivative of revenue.
Profitability of assets can increase at invariable profitability of realization and the
growth of volume of product sales advancing increase in cost of assets, that is acceleration of turnover of assets (resource return). To the contrary, at an invariable resource return profitability of assets can grow and due to growth accounting (to the
taxation) profitability.
Whether has value for an assessment of financial and economic activity of the organization, at the expense of what factors profitability of assets grows or decreases?
Certainly, has. Because at the different organizations possibilities of increase in volume and increase of profitability of product sales aren't identical.
Profitability of realization can be increased by price increase or decrease in expenses. However these ways temporary are also insufficiently reliable in present conditions. The most consistent policy of the organization answering to the purposes of
strengthening of a financial position consists in increasing production and realization
of that production which is defined by improvement of market conditions.
The theory of the financial analysis contains an assessment of turnover and profitability of assets on its separate components: turnover and profitability of material current assets, means in calculations, own and loan sources of means. However, these
indicators in itself are a little informative. Purely arithmetically, as a result of reduction of denominators at calculation of these indicators for comparison with a denominator of an indicator of profitability or turnover of all assets, we have higher profitability and turnover of separate elements of the capital.
In the analysis of economic profitability, certainly, it is necessary to take a role of
its separate elements into account. But it is expedient to build dependence not
through turnover of elements, and through an assessment of structure of the capital in
coordination with dynamics of its turnover and profitability. Therefore Du Pont is the
cornerstone of system the concept according to which coefficient of profitability of
money represents work of coefficient of profitability of product sales on coefficient
of turnover of money:
Cpm.as = Cp.ps · Ctm.as.
From where it is visible that the reasons of deterioration of profitability of money
can lie both in decrease in profitability of realization, and in reduction of turnover of
money.
Investigating this ratio, for the further profound analysis it is possible to define
extent of influence of each of elements. Considering its dynamics, it is possible to define the moment of deterioration of a tendency of its change and to track what of the
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indicators making it led to such change. Thus, it is possible to reach the initial reasons
of deterioration of a situation and to try to change it to the best.
For the integrated analysis of efficiency of use of funds of the organization the
following three-factorial model of Du Pont can be used:
Cpm.as = (NP / Mas) = (NP / P) · (P / ОСср) · (ОСср / Mas).
If as a result of the analysis of financial statements it is established that the net
profit falling on money decreased, it becomes clear, at the expense of what factor it
occurred:
- decrease in net profit by each tenge of proceeds from sales of production;
- less effective management of money (delay of their turnover) that leads to decrease in proceeds from sales of production;
- changes of structure of the advanced capital (financial leverage).
Example:
2012: net profit - 626 thousand tenges; proceeds from sales of production - 10099;
the average size of own capital - 10286; the average size of money – 720 thousand
tenges.
2013: net profit - 148 thousand tenges; proceeds from sales of production –
12568; the average size of own capital – 13226; the average size of money – 920
thousand tenges.
For calculation we use a way of chain substitutions:
2012 Cpm.as = (626/10099) · (10099 / 10286) · (10286 / 720) · 100 = 86,9%;
2013 Cpm.as = (148/12568) · (12568 / 13226) · (13226 / 920) · 100 = 16,1%.
In particular:
1) decrease in net profit was resulted by falling of profitability of money for70,4% (16,5 - 86,9):
ΔCpm.as = (148/12568) · (10099 / 10286) · (10286 / 720) · 100 = 16,5%;
2) delay of turnover of the own was resulted by decrease in profitability of money
by-2,8% (84,1 - 86,9):
ΔCpm.as = (626/10099) · (12568 / 13226) · (10286 / 720) · 100 = 84,1%;
3) as a result of increase in money the profitability gain for 0,6% is received (87,5
- 86,9):
ΔCpm.as = (626/10099) · (10099 / 10286) · (13226 / 920) · 100 = 87,5%.
The interfaced influence of three factors equally:
ΔCpm.as = -70,4 - 2,8 + 0,6 =-72,6% ≈ -70,8% (16,1 - 86,9).
5.2. SWOT analysis system of cash flows
The name of system of SWOT analysis represents an abbreviation of initial letters of the terms characterizing objects of this analysis: S – STREHGTHS (strengths
of the organization); W – WEAKNESSES (weaknesses of the organization); O –
OPPORTUNITIES (possibilities of development of the organization); T – TREARS
(threats to development of the organization).
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SWOT analysis investigates character strong and weaknesses of the organization
regarding opportunities of effective formation of cash flows, and also positive or negative influence of separate external (exogenous) factors on conditions of their development in the forthcoming period. Results of SWOT analysis are represented usually
graphically on complex research of influence of separate factors on formation of cash
flows of the organization.
Problems of SWOT analysis:
- to reveal strong and weaknesses in comparison with competitors;
- to reveal opportunities and threats of environment;
- to connect strong both weaknesses with opportunities and threats;
- to formulate the main directions of development of the organization.
It is necessary to remember constantly that strong and weaknesses are internal aspects, and opportunities and threats are external aspects of the market environment.
At an assessment strong, weaknesses of the organization, its opportunities and
threats usually:
first, the GETS analysis is carried out (abbreviation from capital letters of words:
Governmen, Economy, Technology, Society), that is tendencies of environment are
considered from the point of view of influence of all these components. In other
words the external analysis, besides an assessment of market conditions, has to cover
such spheres as economy, policy, technology, world situation and welfare behavior,
that is to be carried out according to the GETS model;
secondly, the matrix that does possible carrying out the cross analysis is under
construction. SWOT are analyzed not in a separation, separately, and in a combination. For example, as the organization by the strengths can compensate threats of environment: S - O, S - T; W - O, W - T;
thirdly, the formalized assessment through system of the weighed coefficients that
allows to achieve the most objective results is applied. As SWOT analysis doesn't
contain economic categories in a general view, it can be applied to any objects and in
the most different types of activity. Undoubtedly, it belongs and to the analysis of
cash flows. After all money is a basis of any business.
Strengths of the organization of rather cash flows is:
- well developed system of target parameters of management of cash flows;
- the worked functional strategy;
- adequate financial resources;
- increase in growth rates of gross monetary inflow;
- real decrease in gross monetary outflow;
- achievement of an optimum ratio of volumes of monetary inflows and outflows;
- providing a minimum level of monetary assets and their equivalents in relation
to the volume of product sales;
- optimum pure cash flow;
- perhaps limit share of the loan monetary capital;
- increase of level of liquidity of assets, objects of real investment or portfolio of
financial investments;
- effective reinvestment of temporarily free money.
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Weaknesses of the organization is an absence something important for functioning
of the organization or that it isn't possible to realize in comparison with other organizations yet and puts the organization in adverse situation. It is possible to give too
narrow range of products, bad reputation of the organization as an example of weaknesses in the market, a lack of financing, low level of service, the outdated equipment, the unskilled personnel.
If to stop on more private examples of the organization of cash flows, it:
- life cycle of the organization on recession;
- increase in duration of an operational and financial cycle at invariable specialization;
- seasonality of production and product sales;
- inefficient depreciation policy;
- lack of money for financing of necessary changes in strategy;
- over expenditure of money;
- payment of penalties;
- payment of surtaxes and collecting;
- loss of the monetary and equated to them means;
- short-reception or non receipt of means from the planned sources, because of
debts and non-payments;
- the financial mentality of owners and managers which isn't answering to real
time.
Market opportunities are favorable circumstances which the organization can use
for obtaining advantage. It is possible to give deterioration of positions of competitors, sharp increase in demand for the made production, emergence of new production technologies of production, growth of level of the income of the population, etc.
as an example of market opportunities.
It should be noted that opportunities from the point of view of SWOT analysis are
not all opportunities which exist in the market but only what the organization can directly use. In particular it: a stable political and economic situation, the developed financial infrastructure, a favorable environment of the financial and share markets,
progressive system of the taxation.
When determining opportunities and threats, it is necessary to define at what values of opportunity and threat are opportunities and threats. That is, it is necessary to
consider that below a certain standard value opportunity becomes threat.
Market threats are events which approach can make an adverse effect on the organization. Among them:
- instability of a political and economic situation;
- expensive legislative requirements;
- growth of taxes;
- adverse conditions of the commodity and share markets;
- inaccessibility of the financial credit;
- impossibility of attraction of financial resources of gratuitous target financing;
- non-execution of contracts by suppliers and contractors;
- entry into the market of new competitors;
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- change of requirements and tastes of buyers;
- the centralized reduction of prices;
- inflation - depreciation of tenge.
The assessment strong and weaknesses of the organization in relation to opportunities and threats of environment just also defines existence at the organization of
strategic prospects and possibility of their realization. It is clear that there will be thus
obstacles (threat) which need to be overcome. From here reorientation of methods of
management of development of the organization from a support on already reached
results, the mastered production and the used technologies (internal factors) on studying of the restrictions imposed by the external market environment (external factors)
follows.
Formation of system of main objectives of the organization of cash flows has to
take place taking into account desirable and undesirable tendencies of development of
productive indicators of cash flows. The system of these purposes should be formulated accurately and briefly, reflecting each of them in concrete values.
As the most important target parameters of the organization of cash flows can be
established:
- growth rate of the general gross positive cash flow in the considered prospect;
- a ratio of positive and negative cash flows from operating, investment and financial activities;
- a ratio of volumes of attraction of monetary resources from own and loan
sources;
- the minimum rate of a gain of a pure cash flow from operating activities;
- the maximum permissible risk level connected with formation and distribution
of monetary resources;
- maximum duration of a cycle of a monetary turn;
- maximum duration of production and all operational cycle of the organization;
- a minimum level of monetary assets and their equivalents in relation to the volume of product sales;
- maximum period of payback of real investment projects;
- the limit cost of the attracted monetary capital;
- limit share of use of loan money in economic circulation;
- limit of liquidity of objects of real investment or portfolio of financial investments.
So, the matrix of SWOT analysis represents the convenient tool of the structural
description of strategic characteristics of the environment and the organization. At
creation of a matrix it is applied, the so-called dichotomizing procedure used in many
fields of knowledge (philosophy, mathematics, botany, informatics, etc.). Then elements of a matrix represent «dichotomizing couples» (couple of mutually excluding
each other of signs) that allows to reduce entropy of interaction of the environment
and system at the expense of the description of a situation in a general view.
At the same time SWOT analysis contains the main shortcoming in the general
and developed form. SWOT analysis belongs to group of so-called instructive and
77
descriptive models of the strategic analysis which show only the general direction,
and needs to define and select a specific goal each subject and object separately.
Except the designated shortcoming, there are also other aspects which are that
SWOT analysis doesn't give the answer to the following questions:
1. What will be if expectation isn't met by opportunities?
2. What will be if it is absolutely unexpected and unpredictable there will come
threats and risks with which it will be impossible to struggle?
3. What will be if competitors strengthen the positions and will weaken strengths
of the organization?
4. What will be if weaknesses become weaker?
5. How in a matrix of SWOT to analyze risks?
SWOT analysis is carried out to some stages:
The stage 1 - begins with collecting reliable analytical information. Successful
and effective business assumes continuous possession of necessary data on tendencies of the market, activity of competitors, suppliers, etc. In this case SWOT analysis
allows to use competently information for definition of strategy and further behavior,
presenting the available information in the schematic form where all above categories
consist in logically coordinated interaction.
The stage 2 - is carried out the step-by-step analysis internal and environment,
come to light strong and weaknesses of the organization. The internal environment of
the organization is a potential which is a source of its activity though can also become a source of problems if doesn't provide functioning up to standard. The analysis
of the internal environment of the organization opens reserves which can be used for
achievement of goals in competitive fight: resources of the organization, its business
processes, competitiveness are estimated. When forecasting the financial future of the
organization it is necessary to have expanded idea of its financial position (for example, of maintenance of liquidity and ensuring profitability, investment appeal, ensuring effective use and cash flow, etc.).
One part of SWOT analysis is connected with research strong and weaknesses of
the organization. Thus those achievements and features which give additional opportunities are considered as strengths of the organization. Weaknesses of the organization is a lack of any important components for functioning of the organization or in
what lag in comparison with other organizations (competitors) is noted. Weaknesses
demand the serious relation and special attention from the management which has to
make a maximum of efforts that to get rid of them. After all only those indicators
which belong to factors of the internal environment, can be operated.
The most part of information on internal state of the organization is well-known,
and in this case SWOT helps to bring an order in its judgment. Much more difficult
affairs with the description of non-material elements - brands, quality of service, loyalty of the personnel, etc. are. At their discussion it is very important to have results
at least of the smallest researches.
One of ways of weighing strong and weaknesses of the organization is comparison with competitors. In the presence of necessary data such comparison will allow to
make the description of own merits and demerits, to define their ponderability, and
78
then to reveal positions, distinctive from competitors, which will be the basis for development of optimum strategy.
Each organization exists not in itself, and works in a certain environment with
which closely interacts. For the modern environment high degree of dynamism, uncertainty with a big share of riskiness that is connected with a saturation of the market
at an aggravation of competitive fight is characteristic. In these conditions for a survival and further development of the organization continuous studying and fast response to changes in environment, ability to timely adaptation are required. Obviously, as the organization has impact on Wednesday, changing it (for example, when releasing a new type of production, when using new technologies, etc.).
Respectively, the following part of SWOT analysis is directed on studying of factors of environment. Environment of the organization is a source of the resources
necessary for maintenance of internal reserves of the organization up to standard, and
the consumer of its finished goods. However resources of environment are limited
and are object of claims of a great number of other subjects of business acting in the
same environment. At shortage of necessary resources the capacity of the organization is weakened that can entail for it negative consequences.
Factors and conditions which the organization can't influence but which negatively or positively influence its activity belong to environment. Environment can be divided into a macroenvironment (the environment of indirect influence) and a microenvironment (the environment of direct interaction). The macroenvironment creates
the general living conditions of the organization in environment (political and legal,
technical and economic, welfare, ecological and similar factors which can affect a
production activity), and their organization has to consider simply. On a microenvironment (buyers, suppliers, competitors, creditors, shareholders) the enterprise
somewhat can affect.
Favorable market conditions which can increase advantages of the organization,
belong to category of opportunities. All opportunities which aren't existing in the
market, but only what the organization can use are actual for SWOT analysis.
Opportunities can be both priority, and unpromising. It is more expedient to consider the opportunities opening not only before the concrete organization, but also before her competitors in the same market. Threats are the factors making negative impact on the organization. For the different organizations the same factor can be both
threat, and opportunity. For example, if the competitor outstripped in use of opportunity, it can pass for the estimated organization into the category of threats. Or on
the contrary, if a certain threat is successfully eliminated, and the competitor didn't
cope with it, it gives to the estimated organization the additional merits supporting its
strength. Respectively, forces and weaknesses can pass into the contrast depending on
perception of consumers. In time, while the organization goes to achievement of
goals and realization of the strategy, estimated weaknesses can be transformed to impressive threats.
More visually the structure of SWOT analysis is presented in table 18.
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Table 18 - Structure of SWOT analysis
Internal environment
Strengths
Finance, production, organi(S)
zation of management, marWeaknesses keting, human resources, organizational culture
(W)
Opportunities
(O)
Threats
(T)
External environment
International, political, economic,
legal, market, technological, social, competitive, ecological and
other types of factors
Thus, procedure of SWOT analysis consists in transfer strong and weaknesses,
opportunities and threats. The concrete maintenance of each group of external and internal factors is defined by specifics of branch and features of activity of the organization. Therefore they can be added with the characteristics peculiar for a concrete
situation in which the organization works (each SWOT is unique).
It is necessary to be careful of temptation of drawing up too long lists strong and
weaknesses, opportunities and threats, differently there is a situation of an opaque,
uncertain strategic picture. It is enough to catch key indicators. The approximate circle of the characteristics, potential risks and opportunities which are most often included in SWOT analysis is presented in table 19.
Table 19 - Key indicators of SWOT analysis
Strengths (S)
• exclusive competence and experience
• access to unique resources
• scientific potential
• existence of the advanced patented technology and the modern equipment
• rational financial resources
• high qualification of the personnel
• high quality of products and high level of service
• popularity of a trademark
• effective price policy, etc.
Opportunities (O)
• deterioration of positions of competitors
• sharp increase in demand for a product in regions
• emergence of new production technologies
• growth of level of the income of the population
• weakening of the competition
• expansion of the range of production, etc.
Weaknesses (W)
• too narrow product range
• bad reputation of the organization in the
market
• lack of financing
• low level of service
• remoteness of suppliers
• inefficient use of resources
• noncompetitive level of expenses
• outdated equipment, etc.
Threats (Т)
• toughening of legislative regulation
• entry into the market of new competitors
• growth of taxes
• delay of growth of the market
• change of needs of buyers
• transition of suppliers to aggressive credit
policy
• reduction of volumes of crediting, growth of
interest rates for the credits, etc.
The stage 3 - after is made the concrete list strong and weaknesses of the organization, opportunities and threats, from the received four lists the most significant factors are allocated and connection between them is established. At this stage SWOT
matrix for comparison of factors internal and environment (tab. 20) is formed.
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Table 20 - SWOT analysis matrix
Strengths
1.
2.
3.
Weaknesses
1.
2.
3.
Opportunities
1.
2.
3.
S/O
Threats
1.
2.
3.
S/T
W/O
W/T
Procedure of drawing up such confrontational matrix is in detail worked in economic literature. It is sometimes offered to make separately matrixes of opportunities
and a matrix of threats for determination of their importance and need of studying.
Some analysts suggest to use a digital assessment with assignment in the expert way
to each factor of the certain weight connected with probability of approach of an
event, strengthening of the importance of a factor or the importance of a factor in the
opinion of consumers. Then the coefficient received as a result of work of an assessment and weight is calculated. The coefficient is necessary to coordinate the available
factor force to probability of its approach. For example, the scale of an assessment of
scales 0 - 10 is applied. Opportunity «Leaving from the market of the main competitor» is recognized very essential (an assessment 10) but as ruin of the competitor is
improbable (weight 0,01), the factor turns in little significant (0,1).
Most of experts pay attention to the qualitative analysis according to which in
fields of a matrix are noted:
- the strengths helping to use opportunities with the maximum benefit;
- the strengths allowing to resist effectively to threats;
- the weaknesses limiting possibilities of the organization;
- the weaknesses aggravating negative conditions for the organization.
Factors are brought in the corresponding headings of lines and columns on decrease of force of a factor and on probability of approach. In table cells on crossing of
columns and lines four fields for which it is necessary to consider all possible pair
combinations are formed and to allocate what have to be considered when developing
strategy of the organization: «Strengths – Opportunities» (S/O), «Weaknesses – Opportunities» (W/O), «Strengths – Threats» (S/T), «Weaknesses – Threats» (W/T).
Cells with the greatest force of interaction of the most influential factors are studied.
Stage 4. That the analysis wasn't simple ascertaining of the facts, it is necessary to
develop actions for the most important factors. At this stage the main actions which
are necessary for this or that combination strong and weaknesses, opportunities and
threats are defined. Then on the chosen actions it is necessary to make the schedule of
realization with definition of the responsible.
81
Proceeding from comparison of characteristics of the environment and the organization, for each of four fields of a matrix the basic strategy which are the weighed
and creative solution of key problems get out:
(S/O) - is studied the optimistic strategy of behavior in the market which is a reference point of strategic development which consists in use of advantages of the organization to realization of opportunities of environment and extraction from this of
benefits;
(W/O) - is applied the strategy for internal transformations based on use of the
appeared opportunities for overcoming or minimization of the available weaknesses
or on minimization of weaknesses of the organization for the purpose of extraction of
advantages from external opportunities (strategy of the joint organizations, vertical or
horizontal integration);
(S/T) - strategic actions are directed on use of strengths of the organization for
opposition to the threats arising in its external environment, and their neutralization
(diversification - development of new production and the markets, integration);
(W/T) - these strategy in the conditions close to catastrophic, are connected with
attempts to get rid both of weaknesses of the organization, and of external threats
(becomes reasonable or concentration on a narrow segment of the market, or leaving
from the market).
The last considered matrix field, despite a catastrophic nature and even absurdity,
reminds caution of use only of optimistic forecasts and plans. Behind the back of
heads - the personnel and responsibility for the made decisions and result. After all
the situation can change in a root if threats and opportunities behave in not predicted
way, weaknesses under the influence of Wednesday will be aggravated and forces
will be weakened, and strategy will ruin. In this regard there was a concept «AntiSWOT» helping to analyze risks and to define conditions and actions at which strategy won't be realized.
Thus, SWOT analysis represents the method of expert diagnostics of the environment helping to depict the main tendencies of its change, to predict prospects of
activity of the organization, to see alternatives of future development. Successful development of strategy of the organization depends on comprehensive, deep and exact
display of interaction of the organization with environment on the basis of the analysis of all available information. Fixing and accumulation of results of the analysis and
the decisions made on its basis are necessary for creation of the structured administrative experience.
The system of SWOT analysis is quite simple for application, but it quite often
promotes emergence of the hasty and senseless conclusions based on irrelevant or unreliable information.
The main characteristic mistake when carrying out SWOT analysis consists in
substitution of the concepts «internal» and «external». It is necessary to remember
that what the organization owns concerns the first and operates (for example, the personnel), and external - a condition of labor market. Quite often found mistake is reduction instead of the facts of various opinions, estimates and assumptions. Also of82
ten the same facts which especially have a wide zone of influence carry and to positive factors, and to the negative.
In order to avoid miscalculations in strategic planning and receiving from SWOT
analysis of the greatest advantage it is necessary to adhere to some rules:
1) to define a coverage zone for each SWOT analysis. The general analysis of all
company will give the indistinct, generalized and very disputable results. SWOT has
to be as much as possible focused and be carried out, for example, for each new market, the geographical territory, the certain product conducting the competitor or
groups of buyers;
2) it is impossible to use broad and ambiguous definitions. Low-quality SWOT
analysis turns out because of vast statements, decisions and generalizations which
mean nothing to consumers and have nature of the realized or planned intentions, is
more whole. It is necessary to adhere enough exact facts, these researches and to have
proofs in their support, and also not to allow association of several factors;
3) it is necessary to represent accurately distinctions between the internal and external SWOT elements depending on their submission to control of the organization.
In the course of the formulation of factors it is impossible to allow substitutions of
threats of weaknesses, and also opportunities strengths, and vice versa;
4) strong and weaknesses are defined not on the basis of internal representations
of staff of the organization, and from the point of view of vision by their those in the
market: buyers, competitors, etc. For determination of the most significant advantages and weaknesses it is necessary to range them on importance degree;
5) objectivity of such analysis can be reached if information from versatile
sources is used and SWOT analysis is carried out not by one person, but the group of
experts (it is better - by results of market researches);
6) it isn't necessary to try to list all possible factors not to plunge into uncertainty.
It is necessary to be limited only to those circumstances which most strongly influence the organization.
SWOT analysis during the existence caused not only enthusiastic responses. Despite widespread application, even more often it is exposed to the criticism which isn't deprived of common sense.
Perhaps, such standardized scheme of the analysis suits not all organizations. But
first of all pays attention that SWOT analysis belongs to group of so-called instructive and descriptive models of the strategic analysis which show only the general direction, and specific actions need to be defined separately. A certain subjectivity is
peculiar to SWOT analysis. Besides, quite often it is called structuring and inventory
of the existing information without obtaining productive answers to the questions
posed. Therefore simplicity and presentation of this model is deceptive, both quality
of information, and criteria of exposure of estimates to factors, both qualification of
experts, and the subsequent work of the analysts formulating conclusions and recommendations are important here. The qualitative analysis of activity of the organization consists not only in ascertaining reached, but also in the skillful, considered forecast considering many significant parties of production.
83
5.3. Object-oriented analysis of cash flows
The concept of the object-oriented analysis developed by Modern Soft firm
(USA) is based on use of computer technology and a special package of applied programs. A basis of this concept is representation of model of formation of cash flows
of the organization in the form of set of the interacting primary financial blocks modeling «classes» of the elements which are directly forming cash flows. The user himself defines system of such blocks and classes proceeding from specifics of economic
activity of the organization that according to desirable extent of specification to present all key elements of formation of cash flows to models. After creation of model
the user fills all blocks with quantitative characteristics according to reporting information on the organization. The system of blocks and classes can be expanded and
deepened in process of change of activities of the organization and emergence of
more detailed information on process of formation of cash flows.
In methodology of the object-oriented analysis one of the basic concepts are the
object, object model and a class of objects. As in the object-oriented analysis and design of the software these concepts are very important for systemically logical approach to decomposition, we will give their definitions and explanations.
By G. Butch's definition, the object is something, than it is possible to operate.
The object has a state, behavior and identity. The object in methodology of the object-oriented analysis from the point of view of systemology is sign object. The condition of object is characterized by the list (usually static) of all properties of this object and the current (usually dynamic) values of each of these properties. Are among
properties of object inherent in it or the characteristics acquired by it doing object by
itself. The behavior is how the object works and reacts; the behavior is expressed in
terms of a condition of object and transmission of messages.
The object model is the set of the fundamental principles which are the cornerstone of the object-oriented analysis, based on the principles of abstraction, encapsulation, a modularity, hierarchy, typing, overlapping and stability. The abstraction is
essential characteristics of object which distinguish it from all other objects and accurately define its conceptual borders for the observer. Abstraction – process of identification of abstractions. Encapsulation is a process of association and protection of
elements of abstraction which form its structure and behavior. Serves for separation
of external obligations of object from its realization.
Thus, the abstraction is the sign model containing essential (important within the
solved task) properties of object. Besides, the abstraction allows division into components which form a state and behavior of object. For understanding within the system
concepts described above important that the object is described by essential characteristics or abstractions which are result of interrelation of components of object. The
conclusion is quite admissible that the abstraction has to contain the emergent properties which appeared as a result of interrelation of the encapsulated object components.
The hierarchy is a submission or streamlining of abstractions. Typification – the
mechanisms interfering replacement of objects of one type by another or, as a last resort, rigidly limiting such replacement. Overlapping is the property distinguishing ac84
tive objects from inactive. Parallel object – the active object capable to work in the
multiline environment.
Objects possess integrity which shouldn't – and actually, can't be broken. The object can change a state, behave, cope or become in a certain attitude towards other objects. In other words, properties which characterize object and its behavior, remain
invariable.
Classes and objects are separate, but closely connected concepts. In particular,
each object is a copy of any class; the class can generate any number of objects. In
the majority of practical cases classes are static, that is all their features and the contents are defined in the course of compilation of the program. Objects, on the contrary, in the course of implementation of the program are created and destroyed. For an
assessment of quality of the classes and objects allocated in system it is possible to
offer the following five criteria: gearing, connectivity, sufficiency, completeness,
primitiveness.
Gearing is defined as degree of depth of communications between separate modules. It is much more difficult to perceive and modify system with strong dependence
between modules. Complexity of system can be reduced by reduction of gearing between separate modules.
Completeness is meant as existence in the interface part of a class of all characteristics of abstraction. Only such operations which demand access to internal realization of abstraction are primitive.
Allocation of classes and objects – one of the most complex challenges of the object-oriented analysis which is carried out in the course of decomposition of key abstractions of program system.
Decomposition takes the central place in the object-oriented analysis and design
of the software. Object-oriented decomposition is understood as process of splitting
system into the parts corresponding to objects of subject domain. Practical application of the object-oriented analysis leads to decomposition at which the world is considered as set of objects, cooperative for ensuring the demanded behavior.
Division or decomposition is applied in cases when the existing system is considered or the new is projected. Thus two fundamental concepts of a systemology are
applied: analysis and synthesis of systems. Tasks of the analysis are defined as studying of properties and behavior of system depending on its structure and values of parameters, proceeding from the set properties of system; problems of synthesis are reduced to a choice of structure and values of parameters, proceeding from the set
properties of system.
Now don't exist formal methods of synthesis of difficult systems. Apparently, it in
principle is impossible as difficult system are synthesized for conditions which can't
be described concrete mathematical models owing to continuously changing variety
of conditions. Therefore everywhere synthesis through the analysis when some structure of system is set proceeding from practical reasons is put into practice, then it is
analyzed, then its parameters change or the structure is modified, then the analysis
and so on before achievement of necessary result is carried out.
85
In other words, when developing rather difficult software the synthesis problem
by synthesis methods through the analysis is solved. On the one hand, the problem of
creation of new structure or a task of the invention of new abstractions is creative, on
the other hand, there are general rules helping with this process.
We will set in a general view functionality of system effectiveness in the form of
the following expression:
A = F(a1, a2, a3,…, an).
As the explanation of purpose of functionality we will consider a problem of increase in liquidity of a cash flow. Let And – liquidity of a cash flow. The first question which the person solving this problem has to answer – on what depends liquidity
of a cash flow? For simplicity we will consider two making elements: positive and
negative cash flow. We will mark out the properties having impact on the set system
property, for example, in a positive stream – set of receipts of money (let it a), and in
a negative stream - set of payments of money (b).
Means, for increase in system quality A it is necessary to consider possibilities of
synthesis of such structure of the considered elements at which values of indicators a
and b will lead to the demanded result. It is an obvious example of synthesis through
the analysis.
Of course, for increase in liquidity of a cash flow it is necessary to consider more
difficult complex of indicators. And moreover, it is impossible to forget about possible functional dependence of these parameters and about influence of other (unaccounted) parameters. Quite it can appear so that one of unaccounted parameters has a
greater influence on the analyzed system quality A.
Thus, in a general view the rule of decomposition consists in performance of the
following main stages:
• determination of system properties, significant for the solution of an objective;
• search of components of system and their properties having the marked-out system properties solving impact on.
Decomposition can proceed until rather simple components of the considered system and its subsystem are allocated. Here «simplicity» – is a subjective indicator, that
is each analyst defines for himself as it is long necessary to carry out splitting system
and its subsystems into the making elements. The allocated elements and their simplified description in the form of a set of the properties necessary for the solution of an
objective are represented not that by others as abstraction.
Such approach creates a logical framework of system: structure of classes, representing objects of real system in the set abstraction. On the subsequent phases of the
analysis, the attention switches to internal behavior of key abstractions and mechanisms, and also their physical representation. The decisions made in the course of the
analysis set architecture of system, architecture of processes and architecture of modules.
Control questions
86
1. What is the cornerstone of Du Pont system of the analysis of efficiency of cash
flows?
2. In what essence of model of Du Pont?
3. What does the three-factorial model of Du Pont represent?
4. What does SWOT abbreviation mean?
5. What is the main content of SWOT analysis?
6. In what problems of SWOT analysis consist?
7. What events are held at an assessment strong, weaknesses of the organization?
8. In what potential internal strengths of the organization consist?
9. In what potential internal weaknesses of the organization consist?
10. In what potential external opportunities of the organization consist?
11. In what potential external threats of the organization consist?
12. In what the most important target parameters of the organization of cash flows
consist?
13. In what SWOT analysis shortcomings consist?
14. What stages are included by SWOT analysis?
15. To what rules it is necessary to adhere when planning SWOT analysis?
16. What is a basis of the concept of the object-oriented analysis?
17. What concepts are the main in methodology of the object-oriented analysis?
18. In what essence of the concepts «object model», «abstraction», «encapsulation», «abstraction»?
19. What criteria are used for an assessment of quality of classes and objects in
the object-oriented analysis?
20. What is understood as object-oriented decomposition?
Tests
1. Classification of monetary calculations and payments of the organization is
made on signs:
a) on objects of monetary operations and forms of implementation;
b) on currency of payment and an orientation of cash flow;
c) in relation to the enterprise and the period of time;
d) in forms of implementation and a type of the used currency.
2. Treat the external factors influencing formation of cash flows:
a) monetary relations of the organization with budgets of all levels;
b) the monetary relations between head and the affiliated organizations;
c) a political situation in the country;
d) there is no right answer.
3. Distribution in time of receipts and payments of the economic agent is:
a) monetary turn;
b) cash flow;
c) monetary circulation;
d) monetary base.
4. The relation of a positive cash flow to a negative cash flow characterizes:
87
a) balance of cash flows;
b) level of sufficiency of volumes of a cash flow;
c) liquidity of a cash flow;
d) variability of the direction of cash flow.
5. From external sources treat the basic principles of attraction of monetary resources by the enterprise:
a) recoverability, availability at a price, urgency;
b) availability at a price, efficiency, recoverability;
c) efficiency, urgency, availability at a price.
6. By types of economic activity the cash flow is subdivided on:
a) a cash flow on structural divisions;
b) a cash flow on economic operations;
c) operational, financial, investment;
d) a cash flow on the enterprise in general.
7. Increase of narrowness of correlative communication between negative and
positive cash flows by types activity of the organization is reached in the way:
a) uses of system of acceleration delay of a payment turn:
b) acceleration of attraction of money in the short-term period;
c) acceleration of attraction of money in the long-term period;
d) maximizing a pure cash flow.
8. Whenever possible ensuring solvency of firm monetary streams is classified on:
a) predictable and not predictable;
b) regulated and not adjustable;
c) liquid and not liquid;
d) regular and discrete.
9. Has essential impact on formation of cash flows of the organization for time:
a) urgency of investment programs;
b) seasonality of production and product sales;
c) duration of an operational cycle;
d) life cycle of the organization.
10. From operating activities are a part of cash flows:
a) target financing and payments in the budget and off-budget funds;
b) monetary sales proceeds and acquisition of fixed assets;
c) advance payments from buyers and payment of percent for the credit.
11. The credit organized by a pool of creditors for one borrower for financing of
large-scale economic programs is called:
a) financial leasing;
b) call credit;
c) revolving credit;
d) syndicated loan.
12. Acceleration of an operational cycle of the organization:
a) doesn't influence increase in volumes of cash flows;
b) leads to growth of need for money;
c) doesn't influence growth of need for money;
88
d) leads to increase in volumes of cash flows.
13. The provisions of accounting policies reducing profit:
a) increase quality of profit;
b) lower quality of profit;
c) don't influence quality of profit.
14. The indicator of profitability of assets allows to judge about:
a) effective management of assets;
b) to structure of profit;
c) effective management of expenses;
d) speeds of transformation of assets.
15. The analysis of profit based on the resource principle allows to define influence on profit of such factors, as:
a) material capacity;
b) coefficient of production costs;
c) loan capital;
d) volume of product sales in real terms.
89
LIST OF REFERENCES
1. Timofeeva T.V. Analysis of cash flows of the enterprise. – M.: Finance and statistics, Infra-M, 2010. – 368 p.
2. Sorokina E.M. Analysis of cash flows of the enterprise: The theory and practice
in the conditions of reforming of the Russian economy. - Finance and statistics, 2004.
– 176 p.
3. Hakhonova N. N. Account, audit and analysis of cash flows of the enterprises
and organizations. – M.: Mart, 2003. – 304 p.
4. Bocharov V.V. Financial analysis. - SPb.: St. Petersburg, 2009. – 240 p.
5. Bertonesh M., Knight R. Management of cash flows. - SPb.: St. Petersburg,
2004. – 240 p.
6. Pancakes A.O., Litvinov V.G. Analysis of use of money. - M.: Laboratory of
the book, 2010. - 54 p.
7. The analysis of financial statements / Under the editorship of Vakhrushina
M.A., Plaskova N.S. - M.: High school textbook, 2007. - 367 p.
8. Sokolov R.S. Analysis of cash flows of the enterprise. - M.: Laboratory of the
book, 2009. - 166 p.
9. Kovalyov V.V. Financial analysis: methods and procedures. – M.: Finance and
statistics, 2001. - 560 p.
10. Savitskaya G.V. Ekonomichesky analysis. - M.: New knowledge, 2005. - 651
p.
11. Ionova A.F., Seleznyova N.N. Financial analysis. – M.: Prospectus, 2006. –
623 p.
12. Kuznetsova I.D. Management of cash flows of the enterprise: manual. –
Ivanova: Ivanovo state chemical and technological university, 2009. – 193 p.
13. Lytnev O.N. Financial management. Cash flows and bases of the marginal
analysis: manual. – M.: The Russian state university of Immanuel Kant, 2006. – 230
p.
14. Blank I.A. Management of cash flows: Studies grant. - To.: Nika Center, Elga, 2002. – 736 p.
15. Kozhevnikova E.A. Forecasting of the financial future on the basis of SWOT
analysis//Economical department, 2012, №10.
16. Hail Butch, Robert A. Maksimchuk. The object-oriented analysis and design
with examples of appendices. - M.: Williams, 2008. – 721 p.
90
APPENDICES
Appendix 1
Form №1
Balance sheet
as of December 31 ____ years
Assets
Code of
a line
I. Short-term assets:
Money and their equivalents
The financial assets available for sale
Derivative financial instruments
The financial assets considered at fair value through profits
and losses
The financial assets withheld before repayment
Other short-term financial assets
Short-term trade and other receivables
Current income tax
Stocks
Other short-term assets
Total short-term assets (the sum of lines is 010 on 019)
The assets (or the leaving groups) intended for sale
II. Long-term assets
The financial assets available for sale
Derivative financial instruments
The financial assets considered at fair value through profits
and losses
The financial assets withheld before repayment
Other long-term financial assets
Long-term trade and other receivables
The investments considered by method of individual share
Investment property
Fixed assets
Biological assets
Prospecting and estimated assets
Intangible asset
Deferred tax assets
Other long-term assets
Total long-term assets (the sum of lines is 110 on 123)
Balance (line 100 + line 101 + line 200)
III. Short-term obligations
Loans
Derivative financial instruments
Other short-term financial obligations
91
010
011
012
013
014
015
016
017
018
019
100
101
110
111
112
113
114
115
116
117
118
119
120
121
122
123
200
210
211
212
(thousand tenges)
For the
For the
end
beginning
reporting
reporting
period
period
Short-term trade and other creditor debt
Short-term reserves
Current tax obligations for income tax
Remunerations to workers
Other short-term obligations
Total short-term obligations (the sum of lines is 210 on 217)
Obligations of the leaving groups intended for sale
IV. Long-term obligations
Loans
Derivative financial instruments
Other long-term financial obligations
Long-term trade and other accounts payable
Long-term reserves
Deferred tax liabilities
Other long-term obligations
Total long-term obligations (the sum of lines is 310 on 316)
V. Capital
Authorized (joint-stock) capital
Share premium
The redeemed own share tools
Reserves
Retained earnings (uncovered loss)
Total the capital carried on owners of the parent organization (the sum of lines with 410 on 414)
Share of not controlling owners
In total capital (line 420 +/- line 421)
Balance (line 300 + line 301 + line 400 + line 500)
92
213
214
215
216
217
300
301
310
311
312
313
314
315
316
400
410
411
412
413
414
420
421
500
Appendix 2
Form №2
Profit and loss report
in a year which is coming to an end on December 31 ____ years
Name of indicators
Proceeds
Prime cost of the realized goods and services
Gross profit (line 010 – line 011)
Selling expenses
Administrative expenses
Other expenses
Other income
Total operating profit (loss) (+/- lines with 012 on 016)
Income on financing
Expenses on financing
Share of the organization in profit (loss) of the associated
organizations and the joint activity considered on a method of individual share
Other not operating income
Other not operating expenses
Profit (loss) to the taxation (+/- lines with 020 on 025)
Income tax expense
Profit (loss) after the taxation from the proceeding activity
(line 100 – line 101)
Profit (loss) after the taxation from the stopped activity
Profit in a year (line 200 + line 201) carried on:
owners of the parent organization
share of not controlling owners
Other cumulative profit, all (the sum of lines is 410 on
420):
including:
Revaluation of fixed assets
Revaluation of the financial assets available for sale
Share in other cumulative profit (loss) of the associated
organizations and the joint activity considered on a method of individual share
The actuarial arrived (losses) according to pension obligations
Effect of change in a rate of income tax on the delayed tax
of the affiliated organizations
Cash flow hedging
Exchange difference on investments into the foreign organizations
Hedging of pure investments into foreign operations
Other components of other cumulative profit
93
Code of
a line
010
011
012
013
014
015
016
020
021
022
023
024
025
100
101
200
201
300
400
410
411
412
413
414
415
416
417
418
(thousand tenges)
For the
For the
reporting
previous
period
period
Adjustment at reclassification as a part of profit (loss)
Tax effect of components of other cumulative profit
General cumulative profit (line 300 + line 400)
The general cumulative profit carried on:
owners of the parent organization
share of not controlling owners
Earning per share:
including:
Basic earning per share:
from the proceeding activity
from the stopped activity
Diluted earnings per share:
from the proceeding activity
from the stopped activity
94
419
420
500
600
Appendix 3
Form №3
Report on cash flow (direct method)
in a year which is coming to an end on December 31 ____ years
Code of
a line
Name of indicators
I. Cash flow from operating activities
1. Receipt of money, all (the sum of lines is 011 on 016)
including:
sales of goods and services
other revenue
the advance payments received from buyers, customers
receipts under contracts of insurance
the earned rewards
other receipts
2. Leaving of money, all (the sum of lines is 021 on 027)
including:
payments to suppliers for goods and services
the advance payments issued to suppliers of goods and
services
payments for compensation
remuneration payment
payments under contracts of insurance
income tax and other payments in the budget
other payments
3. The pure sum of money from operating activities (line
010 – line 020)
II. Cash flow from investment activity
1. Receipt of money, all (the sum of lines is 041 on 051)
including:
realization of fixed assets
realization of intangible assets
realization of other long-term assets
realization of share tools of other organizations (except
affiliated) and share in joint business
realization of debt tools of other organizations
compensation at loss of control over the affiliated organizations
realization of other financial assets
future and forward contracts, options and swaps
the received dividends
the earned rewards
other receipts
2. Leaving of money, all (the sum of lines is 061 on 071)
including:
95
010
011
012
013
014
015
016
020
021
022
023
024
025
026
027
030
040
041
042
043
044
045
046
047
048
049
050
051
060
(thousand tenges)
For the
For the
reporting
previous
period
period
acquisition of fixed assets
acquisition of intangible assets
acquisition of other long-term assets
acquisition of share tools of other organizations (except
affiliated) and share in joint business
acquisition of debt tools of other organizations
acquisition of control over the affiliated organizations
acquisition of other financial assets
granting loans
future and forward contracts, options and swaps
investments into the associated and affiliated organizations
other payments
3. The pure sum of money from investment activity (line
040 – line 060)
III. Cash flow from financial activity
1. Receipt of money, all (the sum of lines is 091 on 094)
including:
issue of shares and other financial instruments
receiving loans
the earned rewards
other receipts
2. Leaving of money, all (the sum of lines is 101 on 105)
ncluding:
repayment of loans
remuneration payment
dividend payout
payments to owners for stocks of the organization
other leavings
3. The pure sum of money from financial activity (line 090
– line 100)
4. Influence of exchange rates of currencies to tenge
5. Increase +/- reduction of money (line 030 +/- line 080
+/- line 110)
6. Money and their equivalents for the beginning of the
reporting period
7. Money and their equivalents for the end of the reporting
period
96
061
062
063
064
065
066
067
068
069
070
071
080
090
091
092
093
094
100
101
102
103
104
105
110
120
130
140
150
Appendix 4
Form №3
Report on cash flow (indirect method)
in a year which is coming to an end on December 31 ____ years
Name of indicators
1. Cash flow from operating activities
Profit (loss) to the taxation
Depreciation and depreciation of fixed assets and intangible assets
Depreciation of goodwill
Depreciation of trade and other receivables
Write-off of cost of the assets (or the leaving group) intended for sale at fair value minus costs of sale
Loss (profit) on leaving of fixed assets
Loss (profit) on investment property
Loss (profit) on early repayment of loans
Loss (profit) on the other financial assets reflected at fair
value with adjustment through the profit and loss report
Expenses (income) on financing
Remunerations to workers
Expenses on remunerations by share tools
The income (expense) on the postponed taxes
Unrealized positive (negative) exchange difference
Share of the organization in profit of the associated organizations and the joint activity considered on a method of
individual share
Other non-monetary operational corrections of the general
cumulative profit (loss)
Total correction of the general cumulative profit (loss), all
(+/- lines with 011 on 025)
Changes in stocks
Changes of a reserve
Changes in trade and other receivables
Changes in trade and other accounts payable
Changes in debt on taxes and other obligatory payments in
the budget
Changes in other short-term obligations
Total the movement of operational assets and obligations,
all (+/- lines with 031 on 036)
The paid remunerations
The paid income tax
Pure sum of money from operational activity (line 010 +/line 030 +/- line 040 +/- line 041 +/- line 042)
2. Cash flow from investment activity
3. Cash flow from financial activity
97
Code of
a line
010
011
012
013
014
015
016
017
018
019
020
021
022
023
024
025
030
031
032
033
034
035
036
040
041
042
100
200
300
(thousand tenges)
For the
For the
reporting
previous
period
period
4. Influence of exchange rates of currencies to tenge
5. Increase +/- reduction of money (line 100 +/- line 200
+/- line 300)
6. Money and their equivalents for the beginning of the
reporting period
7. Money and their equivalents for the end of the reporting
period
98
400
500
600
700