What Is a Cash Flow Plan?

The source of cash flow is modern finance, which refers to the total amount of cash outflows and cash inflows of investment projects during their entire life cycle.

cash flow

The source of cash flow is modern finance, which refers to the total amount of cash outflows and cash inflows of investment projects during their entire life cycle.

Cash flow is the necessary information for evaluating the economic benefits of investment programs. The specific contents include: (1) Cash outflow: Cash outflow is the total capital expenditure of an investment project. It includes the following items: Investment in fixed assets. Various capital expenditures for the purchase or construction of fixed assets. Investment in current assets. Inventory, monetary funds, and accounts receivable required for investment projects. Operating costs. Production costs, management expenses and sales expenses incurred during the operation of the investment project. It is usually expressed as the total cost minus the depreciation balance. (2) Cash inflow: Cash inflow is the total capital income generated from investment projects. It includes the following items: Operating income. Sales revenue of products sold during the business process. Residual income or variable income. Residual value at the end of the useful life of a fixed asset, or for some reason, the cash income from the sale of fixed assets. Current assets recovered. The amount of the original current asset investment recovered at the end of the life of the investment project. In addition, the cost reduction after implementing a certain decision is also used as a cash inflow. ^[1]

Cash flow management is an important function of modern corporate financial management activities. Establishing a comprehensive cash flow management system is an important guarantee to ensure the survival and development of an enterprise and improve its competitiveness in the market.

Cash flow is an important concept in modern financial management. It refers to the cash generated by a company through certain economic activities (including operating activities, investment activities, financing activities, and non-recurring items) in accordance with the cash receipt and payment system in a certain accounting period. The general term for inflows, cash outflows, and totals, that is, the amount of inflows and outflows of cash and cash equivalents in a certain period of time. For example: selling goods, providing labor services, selling fixed assets, recovering investments, borrowing funds, etc., forming a cash inflow for the enterprise; purchasing goods, receiving labor services, purchasing fixed assets,

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Cash flows are divided into three categories according to their source nature: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Cash flow refers to the

Cash flow refers to the amount of cash inflows and outflows within a certain period of time. For example: selling goods, providing labor services, selling fixed assets, recovering investments, borrowing funds, etc., forming cash inflows of the enterprise; purchasing goods, receiving labor services, purchasing and constructing fixed assets, cash investments, repaying debts, etc., forming cash outflows of the enterprise. Cash flow is a very important indicator to measure whether a company's operating conditions are good, whether it has enough cash to pay off debts, and the ability to realise assets. The daily operation of an enterprise is an important factor affecting cash flow, but not all operations affect cash flow. The factors that affect or do not affect cash flow include:

(1) The increase or decrease between cash items will not affect the change in net cash flow. For example, withdrawing cash from a bank, depositing cash in a bank, and buying bonds due in two months with cash, etc., are all internal fund conversions between cash projects and will not increase or decrease cash flow.

(2) Changes in non-cash items will not affect changes in net cash flows. For example, the use of fixed assets to pay off debts, the use of raw materials to invest abroad, the use of inventories to pay off debts, and the use of fixed assets to invest abroad are all changes between non-cash items. They do not involve cash receipts and payments, and do not cause cash flow increase or decrease.

(3) The increase or decrease between cash items and non-cash items will affect the change in net cash flow. For example, paying for raw materials purchased with cash, investing in cash overseas, and recovering long-term bonds, all involve changes in cash items and non-cash items. These changes will cause cash inflows or cash

Have you encountered the following situations in your work:

The level of cash flow management is often the determining factor for the survival of an enterprise!

The operational crisis of many enterprises also stems from poor cash flow management!

The investment review of world-renowned investment groups also first considers the cash flow of the investment target!

When the economic crisis strikes, the crisis of capital turnover is often the direct cause of corporate bankruptcy!

The value of an enterprise lies in its ability to generate cash flow!

Cash manager, cash manager assistant,

Chief financial officer, financial manager and other relevant financial managers

Understand why cash flow is the lifeblood of your business

Master the basic methods of quantifying cash flow

Improved ability to predict future cash flows

Learn to build your own company's cash flow management mechanism

Understand the focus of corporate cash management in different economic environments

The importance of cash flow in corporate financial management

Cash flow management and working capital analysis

Corporate cash inflow management

Corporate Cash Outflow Management

Quantitative calculation of cash flow

Accurately predict future cash flows

Although China has required listed companies to

The net profit and cash flow realized by an enterprise are both the operating results of the enterprise and both are analysis

The cash flow determines the value creation ability of the company. Only when the company has enough cash can it obtain various kinds from the market.

Case 1: Cash flow analysis of bank credit risk

I. The necessity of corporate cash flow analysis

Profits measured on an accrual basis have their limitations in reflecting the company's ability to pay debts, and cash flows can more accurately reflect the company's ability to pay debts.

In the long run, profits are the source of a company's debt repayment, but the actual solvency of a company depends on the cash it has. As the measurement basis of profit is accrual basis, whether income and expenses should be attributed to the current period as a recognition criterion, rather than whether cash is used to confirm income and expenses, makes it difficult to maintain synchronicity between profit and net cash flow, There must be more cash, and less profit is not necessarily less cash. Therefore, it is often the case that a profitable company may face liquidation because it cannot pay its due debts, while a loss-making company can repay its debts and continue to operate.

Therefore, the analysis of the enterprise life cycle needs to be carried out in conjunction with the corporate cash flow structure. Enterprises in different life cycles have different characteristics of their cash flow structure. By analyzing the cash flow structure of an enterprise, it is helpful to judge the life cycle of the enterprise, so as to make corresponding credit decisions and prevent credit risks.

1. When the net cash flow from operating activities is negative, the net cash flow from investing activities is negative, and the net cash flow from financing activities is positive, it indicates that the company is in the initial stage of the product. At this stage, companies need to invest a lot of funds to form production capacity and develop markets. The only source of funding is through debt raising and financing.

2. When the net cash flow from operating activities is positive, the net cash flow from investing activities is negative, and the net cash flow from financing activities is positive, it can be judged that the enterprise is in a period of rapid development. At this time, the product quickly occupied the market, and the sales showed a rapid upward trend, which was reflected in the withdrawal of a large amount of monetary funds in operating activities. At the same time, in order to expand market share, the company still needed a large amount of additional investment, and the net cash flow of operating activities alone may not meet the requirements Investment must be supplemented by raising necessary external funds.

3. When the net cash flow from operating activities is positive, the net cash flow from investing activities is positive, and the net cash flow from financing activities is negative, it indicates that the enterprise has entered the product maturity period. At this stage, the product sales market is stable and the investment recovery period has entered, but many external funds need to be repaid to maintain a good credit rating of the enterprise.

4. When the net cash flow from operating activities is negative, the net cash flow from investing activities is positive, and the net cash flow from financing activities is negative, the company may be considered to be in a recession. The characteristics of this period are: the market has shrunk, the market share of product sales has decreased, cash inflows from operating activities have been less than outflows, and companies have to recoup their investments on a large scale in order to make up for the debt.

In summary, cash flow analysis helps reveal changes in the financial status of an enterprise and its causes, analyzes its ability to realize cash, and predicts its development trends. The cash flow analysis adjusts the items in the income statement and related items in the balance sheet to cash-based items one by one, explains the source and destination of the company's cash, reveals the reasons for changes in assets, liabilities, and equity, and facilitates analysis of operating activities and investment activities. The ability to obtain financing activities helps to predict the development trend of enterprises.

How to Perform Cash Flow Analysis in Bank Credit Business

On the basis of a comprehensive understanding of the company's production and operation activities, banks should use the analysis of the company's cash flow to determine the company's production and operation status and financial status, help make credit decisions, and effectively prevent credit risks.

(1) Structural analysis

Structural analysis of cash flow, including analysis of inflow structure, outflow structure and net cash flow structure.

Among them, the inflow structure is the proportion of cash inflows to the total cash inflows, reflecting the cash source of the company and the possible ways to increase cash; the outflow structure is the proportion of cash outflows to the total cash outflows, reflecting the company's cash Investment direction and purpose; the structure of net cash flow is the proportion of net cash flow in operating activities, investment activities, and financing activities to the total net cash flow, reflecting the distribution of the company's cash balance.

Through the structural analysis, you can understand the formation process and reasons of changes in the current financial status of the enterprise, grasp the life cycle of the enterprise or product, predict the changing trend of the financial status of the enterprise, and select the entry or exit of credit in a targeted manner.

(Two) analysis indicators of solvency

1. Cash ratio: cash / current liabilities. This indicator reflects the degree of cash protection available to current liabilities. This indicator can most directly and realistically reflect the short-term solvency of the enterprise. Compared with the current ratio and quick ratio, it better reflects the short-term solvency of the company, because the ability of the current assets to convert cash into cash is highly uncertain, and the accounts receivable may not be recovered. Amortized expenses are virtual assets.

The higher the cash ratio, the stronger the company's ability to repay current liabilities. If this indicator is too low, it means that the company may have a payment crisis, but the indicator is too high, and the company may not make good use of its cash resources.

2. Cash on debt: Net cash flow from operations / total liabilities. This indicator reflects the degree of protection of net cash inflows from operating activities received by corporate liabilities. After the establishment of an enterprise, operating activities are the center of its operating activities, and its cash flow should be the main part of the entire cash flow. The larger the value of this indicator, the better the company's main business is running and the stronger its solvency.

3. Cash ratio of current liabilities: Net cash flow from operating activities / current liabilities. This indicator reflects the degree of protection of net cash inflows from operating activities received by the company's current liabilities. The higher this indicator is, the stronger the short-term debt repayment ability of the enterprise is.

4. Debt repayment ratio: Net cash flow from operating activities / long-term and short-term borrowings due and payable at the end of the period. This indicator reflects the current solvency of the enterprise.

(III) Profit Quality Analysis Index

1. Net profit cash ratio: net cash flow / net profit. This indicator reflects the degree of difference between net cash flow and net profit, that is, how much cash is used as a guarantee in the net profit realized in the current period. This indicator is helpful to analyze whether the company has any behavior of manipulating profits. Companies that manipulate book profits generally do not have corresponding cash flows. When the net profit is a positive number, the indicator is too low, and there is a possibility of false profits and losses. Further analysis should be made on the effects of related party transactions, accounting policies, accounting estimates and changes in accounting errors.

Cash analysis of operating profit

Operating profit cash ratio	possibility	Specific analysis
0	Numerator 0, denominator> 0	Profit from operating activities and net cash inflow. The larger the indicator, the better the profit quality.
Numerator 0, denominator <0	Loss from operating activities and net cash outflows. The larger the indicator, the worse the profit quality. If you want to stay in business, you need to reduce your investment or outsource financing.
<0	Numerator 0, denominator <0	Loss from operating activities and net cash inflows. The larger the absolute value, the better the profit quality and the stronger the short-term solvency. Need to improve profitability.
Numerator 0, denominator> 0	Profit from operating activities and net cash outflow. The larger the absolute value, the worse the profit quality is, and the weaker the short-term solvency is. The profit has not been realised, and the ability to realise it needs to be improved, otherwise normal operations will be affected.
Operating profit profit is 0		Profit from operating activities was 0. Need to improve profitability.

2. Cash rate of operating profit: Net cash flow from operating activities / operating profit. This indicator reflects the degree of difference between the net cash flow from operating activities and operating profit, that is, how much cash is used as a guarantee in the profits realized during the current operating activities. The specific analysis of this indicator is shown in the table above.

(IV) Analysis indicators of development capability

1. Cash rate of operating income: Net cash flow from operating activities / operating income. This indicator reflects how much net cash flow an enterprise can earn for each yuan of operating income. If this indicator is greater than the net profit margin of the operating income, it indicates that the enterprise is in a good operating condition and has a good development prospect.

2. Appropriate ratio of net cash flow: net cash flow from operating activities / (capital expenditure + inventory increase + cash dividends). This indicator reflects the extent to which the cash generated by an enterprise's operating activities can be used to pay various capital expenditures, net investment in inventory, and cash dividends. This indicator is greater than or equal to 1 indicating that the funds obtained by the enterprise from operating activities are sufficient to meet various capital expenditures, net inventory investments, cash dividends, etc., and no external financing is required; less than 1 indicates that the funds from the operating activities of the enterprise are insufficient to supply the scale of operations And the need to pay dividends. In addition, this indicator can also reflect the impact of inflation on corporate cash needs.

3. Total asset cash ratio: net operating cash flow / total assets.

This indicator is the proportion of cash generated by a company's operations over its total assets. It is essentially a cash flow-based return on assets that reflects the operating efficiency of the company's total assets. The higher this indicator, the higher the efficiency of the asset operation of the enterprise. This indicator should be used in combination with the total return on assets index. For a company with a higher return on total assets, if the index is lower, it means that the cash flow component of the company's sales income is lower, and the quality of the company's income is not high.

In the analysis of the above four categories of indicators, the comparison of corresponding indicators in different periods and with the same industry (including advanced level and average level) should be used to judge the development trend of the enterprise and the level of the industry in which it is located.

Of course, cash flow analysis is only a means and an important aspect of bank credit risk analysis, and cannot be used as a substitute for balance sheet analysis, income statement analysis, guarantee analysis, and non-financial information analysis. Only through effective combination and reasonable use of multiple methods can comprehensive analysis and correct judgment be made to effectively prevent bank credit risks.