- 25. 01. 2021
- Objavil: Barbara Maher
- Kategorija: Blog
WHAT IS CASH FLOW?
Cash flow is any transfer of money that comes or goes from a company bank account.
WHAT IS A CASH FLOW FINANCIAL STATEMENT?
A statement of cash flows is a statutory financial statement that contains information about all cash inflows and all cash outflows.
It is divided into three sections:
- Cash flow from operations,
- Cash flow from investing,
- Cash flow from financing.
Cash flow from operations include all transactions from all operational business activities.
The second section provides information on a company investing result. It includes cash spent on property, plant and equipment. This section refers to capital expenditures (capex).
Cash flow from financing provides information about cash used in business financing. This section is about how much money is paid via dividends or inflows or outflows from bank loans.
DIRECT AND INDIRECT CASH FLOW STATEMENT
There are no differences between cash flow from investing activities and cash flow from financing activities, the only difference is in the operations section.
The direct method of cash flow from operating activities includes cash received from customers and cash paid to suppliers, employees, and others.
The direct method of cash flow starts with cash transactions such as cash received and cash paid, while ignoring the non-cash transactions.
The indirect cash flow method starts with net income as the base and adds items from both financial statements such as income statements and balance sheets.
TOP KPIs FOR CASH FLOW
- Cash Conversion Cycle
Cash Conversion Cycle (CCC) is a metric that expresses the time (measured in days) it takes a company to convert its investment in inventory and other resources into cash flows from sales. It is also called Net Operating Cycle or simply Cash Cycle. It takes into account how inventories, receivables, and payables affect your overall cash position by indicating how long cash is tied up as working capital in your business process.
CCC = DIO + DSO – DPO
- Sustainable Growth Rate
The sustainable growth rate is the maximum growth rate that a firm can sustain without having to finance growth with additional equity or debt. In other words, it is the growth rate that a firm can sustain without borrowing to finance its working capital. The sustainable growth rate can also be used to plan cash flow.
SGR = Return on Equity (ROE) × (1−Dividend Payout Ratio)
Return on Equity (ROE) = Profits / Average Equity
Dividend Payout Ratio = Paid dividends / profit
- Liquidity Ratio: Current Ratio
The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year.
Current Ratio = Current Assets / Current Liabilities
4. Liquidity Ratio: Quick Ratio / Acid-Test Ratio
The Quick Ratio shows whether a business has the ability to pay off current liabilities with quickly available cash.
Quick Ratio = (Cash & Equivalents + Short Term Investment + Account Receivables) / Current Liabilities
CASH FLOW FORECASTING AND LIQUIDITY MANAGMENT
A cash flow forecast is about predicting cash flows in advance. There are two ways to do a cash flow forecast, both are legal, but the direct method is less popular because it depends on the data that is in the system. The direct method is about real cash inflows and outflows.
Typical cash flows are:
- Cash taken in from customers,
- Cash paid to employees,
- Cash paid to suppliers,
- Taxes paid, etc.
The time horizon for forecasting usually ranges from a daily cash balance to a forecast over several months. It depends on how many business transactions are recorded in the system. Forecast cash flows are taken from sales orders, purchase requisitions and purchase orders, manual postings, A/P and A/R invoices, and more.
SAP Cash and Liquidity Management full scope consist of three components:
- Bank Account Management,
- Cash Operations,
- Liquidity Planning.
The first component is about creating master data, bank statements, setting up payment approvals, and monitoring bank accounts.
Cash Operations is more of a deeper dive into daily cash processing and monitoring. Typical tasks include short-term cash forecasting, daily planning of payments and monitoring of cash balances, analysis of payment statistics, etc.
The third component is liquidity planning. This component is more about mid-term liquidity forecasting and actual cash flow analysing.
With Fiori app Cash Flow Analyzer we can:
- Display the aggregated forecast cash flows and closing balance,
- Display cash flows and closing balances by liquidity item,
- Filter the data with various dimensions, such as calendar day, planning group,
- Switch the display mode between charts and tables,
- Monitor the daily actual cash flows for the past days,
- Forecast and monitor liquidity trends.
|Cash Position Functions
|Liquidity Forecast Functions
|Short-term cash management and forecast
|Mid/long term cash management and forecast
|Shows the development of bank accounts and bank clearing accounts
|Shows the development of subledger accounts (customers and vendors)
|Examples for assigned planning levels/data sources:
● Manual memo records (payment advices)
● Bank postings
● Bank clearing postings
● All treasury transactions, such as (money market transactions and forex transactions), if bank details are maintained
|Examples for assigned planning levels/data sources:
● manual memo records (planned items)
● Purchase orders
● All treasury transactions
|Typical time horizon: 0-5 days
|Typical time horizon: 1-24 weeks
CASH FLOW PLANNING, BUDGETING AND FORECASTING IN SAP ANALYTICS CLOUD
Cash flow planning in SAP Analytics Cloud is a step towards simple and accurate cash flow planning with multiple planning functions. A cash manager can easily create a liquidity plan based on actual and forecast data. A central liquidity plan can also be created based on approved subsidiary plans.
CASH FLOW SMART PREDICT AND SMART DISCOVERY (MACHINE LEARNING)
Using live SAP HANA data to build predictive models with Smart Predict: reports and KPIs with predictive insights.
Machine Learning / AI Technologies enable business users to gain insights and make decisions with more confidence by:
- Automatically identifying hidden trends or recurring patterns,
- Uncovering key drivers of KPIs,
- Experimenting to see how certain KPI values affect the outcome,
- Explore hidden structures and relationships,
- Predict future values based on historical trends,
- Recommend preferred course of action based on given assumptions and priorities,
- Provide a more intuitive human/machine interface with smart assistant capabilities.
CASH FLOW DRIVER BASED SIMULATIONS AND WHAT IF ANALYSIS
Driver based planning helps in identifying drivers to perform planning. Driver-based planning is a planning and management approach that focuses on identifying an organization’s key business and value drivers and then creating business plans and budgets based on those key drivers. Driver-based planning saves a lot of time and effort in budgeting and forecasting.
Value driver trees are a way to connect areas of your business and run simulations in one area to see how it will affect others. You can simulate different what-if scenarios in terms of cash flow. Value driver trees and “what if” scenarios give great insight into the future outlook and the relationships between drivers and metrics.
CASH FLOW ANALISYING WITH DASHBOARDS
Dashboards help us understand and analyse data much faster. When analysing data, it’s important to look at the same KPIs over time so we can really see the key influencers or trends in our business.