new frontier s e r v i c e s CASH FLOW

2 new frontier s e r v i c e s TABLE OF CONTENTS 1.WHAT IS CASH? 2.WHAT IS CASH FLOW? 3.WHY IS CASH FLOW IMPORTANT? 4.THE CASH FLOW STATEMENT 5.HOW IS CASH FLOW CALCULATED? 6.SAMPLE CASH FLOW STATEMENT 7.MORE INFORMATION 8.REFERENCES

3 new frontier s e r v i c e s 1.WHAT IS CASH? Cash is money you have rapid access to For example: Liquid money Money in current accounts and short term deposits Foreign currency and deposits that can quickly be converted into your currency Cash is used to cover the current loans, (see Balance Sheet presentation) such as paying creditors, bills and employees

4 new frontier s e r v i c e s 2. WHAT IS CASH FLOW? Cash flow is the movement of cash in and out of a business during a given period of time An ample cash flow means that the company can re-invest the cash into the business or is able to cover current loans on time. If it were not able to cover these debts then it would be insolvent and at risk for bankruptcy were the insolvency to continue Cash flow can be used to analyze the movement of cash specific to a project or to the business as a whole. It is important to obtain information on the cash flow and know how to manage and monitor it because without cash a business will die

5 new frontier s e r v i c e s 3. WHY IS CASH FLOW IMPORTANT? (I) Cash flow is the most important aspect of any business An analysis of the Cash Flow will give and idea on: short or long-term funding requirements financial strength of the business Businesses offer their costumers a credit when they buy goods or services, meaning that it will need other resources to cover imminent costs such as: paying salaries monthly rent The timing of cash movements will need to allow a positive cash flow for the company to continue its activity

6 new frontier s e r v i c e s Credit for purchasePayment of purchase Cash is moving out before moving in. In order to have a positive cash flow the business will need other financial resources available to cover imminent costs during this period of time. Cash mouvement : InCash mouvement : Out Weeks 1324 The following diagram illustrates the period of time during which a postive cashflow is fundamental: 3. WHY IS CASH FLOW IMPORTANT? (II)

7 new frontier s e r v i c e s 4. THE CASH FLOW STATEMENT The cash flow statement illustrates the changes in cash flow over a precise period of time. The statement can refer to past actions or can be a forecast of future ones The statement analyses the sum of the following three activities: Operational cash flow: this refers to the operational costs and cash incomes as a result of the companys recurring activity Investment cash flow: cash received or spent on investments Financing cash flow: cash received from loans or spent on loan repayments and payment of dividends (Shareholders percentage of profit)

8 new frontier s e r v i c e s The following list describes what is meant by Inflows and outflows of cash: Cash inflows –Payment for goods or services from your customers –Interests on savings and investments –Shareholder investments –Increased bank overdrafts or loans Cash outflows –Purchase of stock, raw materials or tools –Wages, rents and daily operating expenses –Purchase of fixed assets - PCs, machinery, office furniture, etc –Loan repayments –Payment of taxes 5. HOW IS CASH FLOW CALCULATED? (I)

9 new frontier s e r v i c e s The Net cash flow is the difference between incoming and out coming cash in a precise period of time A positive net cash flow illustrates the companys ability to generate surplus cash in order to sustain the company 5. HOW IS CASH FLOW CALCULATED? (II) Net Cash Flow = Sum of inflows – Sum of outflows Over a specific period of time

10 new frontier s e r v i c e s Source of Funds Beginning cash 0-11,767143,765416,274924,480 Sales/Svcs Income 1,366,9862,662,5483,416,1234,565,6165,981,959 Sale of Assets Customer deposits Loans Contributed Capital 400, Available Cash $1,766,986$2,650,781$3,559,888$4,981,890$6,906,439 Use of Funds Salaries 1,355,0001,676,0002,044,0002,557,0003,355,000 Other operating expenses 423,753759,933900,2451,187,3401,533,432 Loan payments 024,91099,640 Capital Expenditures Tax Payments Total Cash Out $1,778,753$2,507,016$3,143,614$4,057,410$5,265,863 Net Cash Flow ($11,767)$143,765$416,274$924,480$1,640,576 Source: viewed the 05/10/ SAMPLE CASH FLOW STATEMENT

11 new frontier s e r v i c e s 7. MORE INFORMATION AT :

12 new frontier s e r v i c e s 8. REFERENCES viewed the 05/10/10 l3= &r.l2= &r.i= &type=RESOURCES&itemId= &r.t=RESOURCES viewed the 05/10/ viewed 05/10/ viewed 05/10/ viewed 05/10/ viewed 05/10/10

13 new frontier s e r v i c e s Legal disclaimer: The sole responsibility for the content of this presentation lies with the authors. It does not necessarily reflect the opinion of the European Union. Neither the EACI nor the European Commission are responsible for any use that may be made of the information contained therein.