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Cash flow from investment activities. Cash flows of the investment project Cash inflows from investment activities

Optimization of financial, production and investment processes is unthinkable without qualitative analysis. Based on the data of the studies and reports carried out, a planning process is carried out, and unfavorable factors hindering development are eliminated.

One of the types of evaluation of the effectiveness of financial activity is the calculation cash flow. Formula and features of the application of this technique will be presented below.

Purpose of analysis

Cash flow formula calculated according to certain methods. The purpose of such an analysis is to determine the sources of income Money to the organization, as well as their expenditure to calculate the deficit or excess of money for the period under study.

To carry out such a study, the enterprise generates a cash flow statement. A corresponding estimate is also drawn up. With the help of such documents, it is possible to determine whether the available funds are sufficient for the organization of a full-fledged investment, financial activity of the company.

The conducted research allows to determine whether the organization is dependent on external sources of capital. It also analyzes the dynamics of inflow and outflow of funds in the context of each type of activity. This allows you to develop a dividend policy, to predict it in the future period. Cash flow analysis aims to determine the actual solvency of the organization, as well as its forecast in the short term.

What does the calculation give?

Cash flow, calculation formula which is presented in various methods, requires proper analysis for the possibility of effective management. In the case of the presented study, the organization gets the opportunity to maintain a balance of its financial resources in the current and planned period.

Cash flows must be synchronized in terms of their time of receipt and volume. Thanks to this, it is possible to achieve good indicators of the company's development, its financial stability. A high degree of synchronization of incoming and outgoing flows makes it possible to accelerate the execution of tasks in a strategic perspective, and reduce the need for paid (credit) sources of financing.

Financial flow management allows you to optimize the use of financial resources. The level of risk in this case is reduced. Effective management will help to avoid the insolvency of the company, increase financial stability.

Classification

There are 8 main criteria by which cash flows can be grouped into categories. Taking into account the methodology by which the calculation was made, they distinguish between gross and for the first approach it involves summing up all the cash flows of the enterprise. The second method takes into account the difference between income and expenses.

According to the scale of influence on the economic activity of the organization, the general flow for the company, as well as its components (for each division and economic operations), are distinguished.

By type of activity, production (operating), financial and investment groups are distinguished. In the direction of movement, a positive (incoming) and negative (outgoing) flow is distinguished.

Considering the sufficiency of funds, a distinction is made between excess and shortage of funds. The calculation can be made in the current or planned period. Also, flows can be classified into discrete (one-time) and regular groups. Capital can flow in and out of an organization at regular intervals or randomly.

Net flow

One of the key indicators in the presented analysis is Net cash flow. Formula this coefficient is used in the investment analysis of activities. It gives the researcher information about the financial condition of the company, its ability to increase its market value, and attractiveness to investors.

Net cash flow is calculated as the difference between the funds received and withdrawn from the organization for a selected period of time. It is actually the sum between financial, operating and investment activity.

Information about the size and nature of this indicator is used in making strategic decisions by the owners of the organization, investors and credit companies. At the same time, it becomes possible to calculate whether it is advisable to invest in the activities of a particular enterprise or in a prepared project. The presented coefficient is taken into account when calculating the value of the enterprise.

Flow control

Cash flow ratio, formula which is used in calculations by almost all large organizations, allows you to effectively manage financial flows. For calculations, it will be necessary to determine the amount of incoming and outgoing funds for a specified period, their main components. Also, the breakdown is performed in accordance with the type of activity that generates a certain movement of capital.

The calculation of indicators can be done in two ways. They are called indirect and direct methods. In the second case, the data of the organization's accounts are taken into account. The fundamental component for conducting such a study is the indicator of sales revenue.

The method of indirect calculation involves using for the analysis of the article balance sheet, as well as a statement of income and expenses of the enterprise. For analysts, this method is more informative. It will allow you to determine the relationship between profit in the study period and the amount of money of the enterprise. The impact of changes in balance sheet assets on the indicator net profit can also be considered when using the presented methodology.

Direct settlement

If the calculation is made at a particular moment is determined current cash flow. Formula its simple enough:

NPV = NPO + NPF + NPI, where NPV - net cash flow in the study period, NPO - cash flow from operating activities, NPF - from financial transactions, NPI - in the context of investment activities.

To determine the net cash flow, you must use the formula:

NPV \u003d VDP - IDP, where IDP is the incoming flow of money, IDP is the outgoing flow of funds.

In this case, the calculation is carried out for one or more calculation periods. This is a simple formula. The components from each type of activity must be calculated separately. In this case, it is necessary to take into account all the components.

Calculation of net investment flow

The bulk of the funds of the organization, which is at the disposal of the company in this moment, comes from operating cash flow. Formula calculation of the net indicator (was presented above) necessarily takes into account this value.

NPI \u003d VOS + PNA + PDFA + RA + DP - PIC + SNP - PNA - PDFA - VSA, where VOS - revenue received from the use of fixed assets, PNA - income from the sale of intangible assets, PDFA - income from the sale of long-term financial assets, RA - income from the sale of shares, DP - interest and dividends, PIC - acquired fixed assets, COP - balance of work in progress, PNA - purchase of intangible assets, PDFA - purchase of long-term financial assets, VSA - the amount of repurchased own shares.

Net Cash Flow Calculation

Cash flow formula uses data on the net Calculation is carried out according to the following formula:

NPF \u003d DVF + DDKR + DKKR + BCF - VDDK - VKKD - YES, where DVF - additional external financing, DDKR - additionally attracted long-term loans, DKKR - additionally attracted short-term loans, BCF - non-repayable targeted financing, VKKD - debt payments under VKKD - payments on short-term loans, YES - dividend payments to shareholders.

indirect method

Indirect also allows you to determine the net cash flow. Balance Formula involves adjustments. For this, data on depreciation, changes in the structure and number of current liabilities and assets are used.

The calculation of net profit from operating activities is made according to the following formula:

NPO \u003d PE + AOS + ANA - DZ - Z - KZ + RF, where NP - net profit of the enterprise, AOS - depreciation of fixed assets, ANA - depreciation of intangible assets, DZ - change in receivables in the study period, Z - change in stocks, KZ - change in the amount of accounts payable, RF - change in the indicator of reserve capital.

The net cash flow is directly affected by changes in the value of the company's current liabilities and assets.

free cash flow

Some analysts use the indicator in the process of studying the financial condition of the organization free cash flow. Formula calculation of the presented indicator is considered in two main aspects. Distinguish between the free cash flow of the firm and capital.

In the first case, the indicator of the company's operating activity is considered. It subtracts investment in fixed assets. This indicator provides information to the analyst about the amount of finance that remains at the disposal of the company after investing capital in assets. The presented methodology is used by investors to determine the feasibility of financing the company's activities.

The free cash flow of capital involves subtracting from the total amount of finance of the enterprise only its own investments. This calculation is used most often by the shareholders of the company. This technique is used in the process of assessing the shareholder value of the organization.

Discounting

To compare future financial payments with the current state of the value, a discounting technique is applied. This technique takes into account that in the long term, money gradually loses its value relative to the current state of the price. Therefore, the analysis uses discounted cash flow. Formula it contains a special coefficient. It is multiplied by the amount of the cash flow. This allows you to correlate the calculation with the current level of inflation.

The discount factor is determined by the formula:

K = 1/(1 + SD)VP, where SD is the discount rate, IP is the time period.

The discount rate is one of the most important elements in the calculation. It characterizes how much income an investor will receive when investing his funds in a particular project. This indicator contains information about inflation, profitability in the context of risk-free operations, profit from increased risk. Also, the calculations take into account the refinancing rate, the cost (weighted average) of capital, deposit interest.

Optimization Approaches

When determining the financial condition of the organization, take into account discounted cash flow. Formula may not be taken into account if the indicator is given in the short term.

The process of optimizing cash flow involves establishing a balance between the company's expenses and income. Scarcity and surplus negatively affect the financial condition and stability of the organization.

When there is a shortage of funds, liquidity ratios decrease. Solvency also becomes low. An excess of funds entails the actual depreciation of temporarily idle funds due to inflation. Therefore, the company's management must balance the amount of incoming and outgoing flows.

Considering what is cash flow formula its definition, it is possible to make decisions on optimizing this indicator.

The operations of the enterprise, including the acquisition and sale of intangible assets, shares of shares in the conditional capital of joint ventures, other securities (not being short-term investments), as well as the issuance of long-term loans to other enterprises and individuals and their subsequent return, are the main components of its investment activity. .

Investment activity is associated with the sale and acquisition of long-term property

The cash flow arising from investing activities reflects the level of production costs for resources intended to generate income and future cash flows.

Cash flow from investment activity summarized in the section "Investment activities"

Cash flows from investing activities include:

For example, an enterprise receives income from the operation of acquired fixed assets not immediately after their purchase, but during the entire period of their purchase, but during the entire period of their operation. Similarly, long-term securities can generate future dividend income and influence the amount of future cash flows through the amount of dividends received.

We will analyze the cash flow for investment activities at the Zhemchuzhina LLC enterprise for three years (2004-2006)

Table number 2

Analysis of cash flows for investment activities

Indicators

Off(+/-) 2004-2005

Off(+/-) 2005-2006

Receipt of DS, total

Interest received

Dividends received

Including from abroad

Other supply

DS expenses, total

18

Cash payments for the acquisition of long-term assets

Net receipts (disposals) of DC from investing activities

- 18

138

-138

Table 2 and diagram 2 show that Zhemchuzhina LLC increased its sales income in 2005 compared to 2004 due to the disposal of long-term assets (81 thousand lei) and other income.

The expenditures of funds at the enterprise (- 6 thousand lei) associated with the acquisition of long-term assets also slightly decreased.

And in 2006, no operations were carried out on investment activities.

Income from an investment company Disposal from an investment company

Diagram #2. Analysis of cash flows for investment activities

As follows from Table 2, Zhemchuzhina LLC does not allocate the received funds to the acquisition of fixed assets, which would normally be reflected in the form of a negative cash flow from investing activities. Lack of proper attention to this aspect can provoke the emergence of difficulties in the implementation of operations due to insufficient technical capacity.

Financial activity of the enterprise is a set of operations related to raising capital to finance its activities. The result of financial activity is a change in the size and composition of the company's own and borrowed capital.

Financial activity is an activity, the result of which is a change in the size and composition of the company's own capital and borrowed funds.

It is considered that an enterprise carries out financial activities if it receives resources from investors and owners returns them, receives and returns loans and loans and pays dividends.

Cash inflows and outflows related to financial transactions are highlighted in a separate section of the report, as this information makes it possible to predict the future amount of cash to which investors will be entitled.

Cash flows from financing activities are summarized in section "Financial activities".

Information on the cash flow as a result of financial activities is very important, as it allows users of financial statements to find out why the company has increased or decreased equity capital, what changes and why have occurred in the size and composition of long-term and short-term liabilities. In addition, this information is useful in forecasting future cash flow requirements from investors and creditors. Financial activity is designed to increase the funds at the disposal of the enterprise for financial support of operating and investment activities.

For each area of ​​activity it is necessary to sum up the results. It is bad when cash outflows prevail in operating activities, this indicates that the cash received is insufficient to ensure the current payments of the enterprise.

Cash flows from financing activities include:

In this case, the lack of funds for current expenses will be covered by borrowed resources. If, in addition, there is an outflow of funds from investment activities, then the financial independence of the enterprise decreases.

We will analyze the cash flow for financial activities at the Zhemchuzhina LLC enterprise for three years (2004-2006)

The data provided in table No. 3 allows us to see that the receipt of funds from financial activities was associated only with obtaining loans and credits. This is due to the fact that, due to a shortage of funds for the operating activities of Zhemchuzhina LLC, it is necessary to attract additional funds to cover its expenses

Table #3

Analysis of cash flows for financial activities

Indicators

Off(+/-) 2004-2005

Off(+/-) 2005-2006

DS receipts, total

12 588

12 260

- 328

- 4 923

Cash inflows in the form of credits and loans

Cash flows from issuance of own shares

DS spending, total

9 589

10 810

+ 3 239

+ 1 221

Cash payments on loans and borrowings

Dividend payments

Including uncut.

Cash payments on buyback of co-shares

Other DS payments

Net receipts (payments) DS

6 237

21 671

+15 433

-6 144

Although it must be said that from year to year credits and loans decrease, in 2005 compared to 2004 by 327,770 lei, and in 2006 compared to 2005 by 4,922,790 lei. But as can be seen from the data in the table, this led to the emergence of a negative net inflow (outflow) of cash from financial activities.

Income from financial institution Disposal from financial institution

activities (thousand liters) activities (thousand liters)

Diagram #3. Analysis of funds for financial activities.

It can be seen from the above diagrams, as well as the balance sheet data of the enterprise, that the loans received are of a short-term nature and cause their quick return. Consequently, due to a lack of funds, Zhemchuzhina LLC is not able to issue or redeem its own shares.

All three of the activities we have considered form a single amount of the enterprise's monetary resources, the normal functioning of which is impossible without a constant overflow of cash flows from one area to another. The very existence of the three areas of activity of the organization is aimed at ensuring its efficiency. Even profitable production - economic activity may not always bring in enough money to purchase non-current assets (real estate or equipment). In such situations, new loans are needed, the cost of which must be offset by future investment returns. In the context of the non-payment crisis, enterprises are forced to seek additional short-term financing. working capital. But expenses for such purposes cannot be offset by future income, since the money was not used for investment.

Let's make a structural analysis of the cash flow at the enterprise Zhemchuzhina LLC.

Structural analysis provides users of financial statements with detailed information about the origin of cash receipts and their further use. The analysis examines the relationship between the various channels of receipt and disposal of funds. Structural analysis allows you to evaluate the contribution of each component of the cash flow in the formation of the overall flow.

In economic theory and economic practice, two technical methods of implementation are used. structural analysis cash flow. The essence of the first method consists in a separate study of the structure of cash receipts and payments with the calculation of the share of each constituent element in the total amount of receipts and payments, respectively. When applying this method in the process of preparing analytical materials, pie charts are often constructed, with the help of which the structure of cash flows is presented in a more accessible form.

Based on the data of the cash flow statement for the last two years, we will compile an analytical table, build charts and interpret the results.

Using the data from column 6 of table No. 4, we will present the structure of cash flows at the Zhemchuzhina LLC enterprise in the reporting year using diagram No. 4. In 2004, the main elements that form the cash flow at the Zhemchuzhina LLC enterprise are sales proceeds (44.84%). Receipts in the form of credits and loans make up 38.39%, and other income - 16.77%. it speaks of efficient functioning enterprises.

Table No. 4

Separate analysis of the structure of cash receipts and payments

Money

cash receipts

Sales proceeds

Other income from operations.

Receipts in the form of loans and borrowings

Cash receipts from disposal of non-current assets

Total cash receipts

19 378

Cash payments

Payments to suppliers

Staff benefits

Payment of %

Income tax payments

Other operating payments

Payments on loans and borrowings

Cash payments for the acquisition of long-term assets

Total cash payments

32 677

100

18 304

Diagram #4. Cash receipts and payments at Zhemchuzhina LLC in 2006.

From the data of table No. 4 and the information presented in diagram No. 4, it follows that a significant part of the payments falls on the share of suppliers (61.25%), 19.45% - on the share of payments on loans and borrowings, 14.2% are other operating expenses, and the rest for the share of payments to personnel (2.11%), interest payments (2.55%)

In 2005, sales receipts decreased to 36.57%, while receipts from loans and borrowings increased to 56.11%.

In 2006, as in 2004, sales proceeds are higher (than proceeds from loans and borrowings (37.86%)

In 2005, most of the payments go to repay credits and loans (44.06%), and in 2006 this item accumulates the principal amount - 52.18% of the total amount of payments. Suppliers accounted for 39.97% in 2005 and 37.93% in 2006.

Among the structural changes, the emergence of income tax payments in the reporting year, the share of which amounted to 0.03% of the total amount of cash payments, stands out.

The political factor, as mentioned above, significantly affected the operating activity. Consequently, this is what provoked the Zhemchuzhina LLC enterprise to acquire a larger loan, which entails an annual increase in loan payments.

Having analyzed three recent years functioning of Zhemchuzhina LLC, it can be concluded that the situation with the inflow and outflow of funds is quite stable. This is due to the fact that the company has specialists who try to use funds efficiently, control both the flow and outflow, trying to keep the company during the crisis, to prevent its bankruptcy.

Among the structural changes, the emergence of income tax payments in the reporting year, the share of which amounted to 0.03% of the total amount of cash payments, stands out. In the long term, the direct method of calculating the amount of cash flows makes it possible to assess the level of liquidity of the enterprise.

Let's analyze the cash flow by the coefficient method. This method is often used in foreign analytical practice to assess the situation regarding cash flow. The peculiarity of the method is the calculation of financial ratios, which reflect the various ratios between received and used funds. These coefficients are very numerous and varied, but for the most part, they characterize the ability of an enterprise to satisfy certain needs due to the availability of funds.

In particular, using this method in the course of cash flow analysis, the coefficients presented in Table No. 5 can be calculated.

The results of the analysis (carried out in table No. 5) indicate that the level of cash flow adequacy has sharply increased at the Zhemchuzhina LLC enterprise.

Table number 5

Analysis of cash flow ratios for Zhemchuzhina LLC


Diagram #5

If in 2004 the company generated a net operating flow as a result of operating activities, which was one time less than the company required, then in 2006. There is a situation that the company almost 100% satisfies its needs. This is due to the fact that Zhemchuzhina LLC used a loan.

Diagram #6

As can be seen from diagram No. 6, the calculation of the degree of coverage of cash flow obligations shows that during 2004. and 2005 the situation is characterized by the absolute inability of the enterprise to repay debts without financing from outside. In 2006 Zhemchuzhina LLC, with the help of cash received from operating activities, covered 11% of the total amount of liabilities, exists at the end of the year. This indicates that the company has become more creditworthy.

The sufficiency ratio of the absolute liquidity of assets at the Zhemchuzhina LLC is at a very low level.

Diagram #7

If in 2005 it increased by 3.74 days (from 1.66 in 2004 to 6.21 in 2005), then in 2006 dropped significantly at the end of 2006. Zhemchuzhina LLC has absolutely liquid assets in the amount that would allow the implementation of average operating payments within 0.70 days.

Diagram #8

From the calculations made in table No. 5 and diagram No. 8, it follows that the degree of reinvestment of funds in the Zhemchuzhina LLC enterprise in 2005. (18.01%) exceeded the recommended level (8-10%).

And in 2004 and 2006 reinvestment of funds did not take place at all due to the formation of an operating clean flow from operating activities.

In the long term, the direct method of calculating the amount of cash flows makes it possible to assess the level of liquidity of the enterprise.

In operational financial management, the direct method can be used to control the process of generating proceeds from the sale of products (works, services) and draw conclusions regarding the sufficiency of funds for payments on financial obligations.

The disadvantage of this method is that it does not take into account the relationship between the obtained financial result (profit) and the change in the absolute amount of the company's cash.

During the operation of the enterprise or during the implementation of projects, incoming and outgoing cash flows are generated. Their focus and the predominance of one over the other indicates how successful the project is and what to expect from it in the future. Let's consider how the cash flow from the investment activity of the company is formed and how important it is in its activities.

Investment cash flow among other cash flows

When conducting a preliminary assessment and analysis of an investment project, the most important condition is the calculation of the expected cash flows (cash flow, or cash flow). Each calculated step for a given period of time is characterized by the following cash flow indicators:

  • receipts of funds (inflow);
  • costs in the form of payments;
  • the difference between receipts and expenses (balance, balance sheet).

The cash flow of an investment project is considered as a summary indicator of flows generated by various types of activities:

  • Operating room (internal, main). It affects the production sector (purchase of the necessary materials, parts, raw materials, energy supply, remuneration of employees, transfer of taxes, sale of the manufactured product).
  • Financial. Here the basis is the work with external finance. This is the issue, sale and purchase of securities, the calculation of dividends, the attraction of subsidies, loans, subsidies, etc.
  • Investment. In this direction, work is carried out with assets (their acquisition, modernization, expansion and sale).

Not owning complete information about the expected movement of cash flows, it is impossible to correctly calculate the discounted value of the investment project, and without such an analysis it is not advisable to invest in the proposed undertaking.

How is the investment financial flow formed

Investment cash flow often has negative indicator, since it contains mainly the costs of implementing the initiative, as well as its expansion and modernization in the course of implementation. It is usually covered by income received from the main activity of the enterprise (sale of goods or services).

Outflows consist of the following items:

  • capital investments (research, development and construction works);
  • purchase and installation of the necessary equipment;
  • acquisition of intangible assets (copyrights, licenses, permits, rights to use something, for example, a land plot);
  • commissioning works;
  • expenses for the implementation of work on the liquidation of the object (environmental measures, reclamation, etc.);
  • expenses aimed at increasing the volume of working capital.

Also, outflows include a number of non-capitalized expenses (costs for external infrastructure facilities, taxes on the land used for the project). If we are talking about capital construction, then investments should always be linked to the construction schedule. Investment costs are classified by types of costs.

The tributaries characteristic of this direction consist of:

  1. Incomes received from the sale of enterprise assets (surplus equipment or raw materials, unused buildings or premises), their sale is most often made after the closure of the project, although this often occurs during its implementation. In particular, if a part of the equipment is no longer used in the production process, then it can be sold, the same can be said about the surplus of production and auxiliary areas.
  2. Funds received from the sale of intangible assets (copyrights, intellectual property). Such transactions occur infrequently, but lead to significant inflows of funds.
  3. Receipts resulting from a decrease in working capital.

This also includes non-operating income of the company. For example, a company has deposited temporarily unused money into a bank account. In this case, the interest on the deposit refers specifically to the investment monetary sector, while the return of the principal amount of the deposit refers to the financial sector.

As can be seen above, the dynamics of changes in working capital affect the inflow and outflow of money. At its core, the value of net working capital is the difference between cash assets and liabilities for this moment time. When making calculations, the following criteria are mainly used:

  1. current normalized liabilities, which include accounts payable;
  2. current normalized assets, including accounts receivable, inventories and work in progress.

Consequently, when forming stocks of materials and raw materials for the needs of production, finances are spent for this (there is an outflow), thus, fixed capital increases. If stocks in such quantities are no longer needed, then some of them are sold (there is an inflow), and working capital decreases.

How investment cash flow is calculated

To calculate the cash flows from investment activities, experts recommend using a special table that enters the costs and receipts for each step with the appropriate sign.

№ Name of indicator Step 0 Step 1 Step 2 Step 3 Step...
1 Total inflows of funds, including:
1.1 Income from the sale of fixed assets (after taxes)
1.2 Income from the sale of intangible assets and / or fixed assets after the completion of the investment project (liquidation value)
1.3 Return of current assets at the end of the project (liquidation value)
2 Total cash outflows, including:
2.1 Investment costs (total capital investments), incl.
investments in fixed assets
expenses on intangible assets
expenses on non-current assets (commissioning and other works, non-capitalized costs, replacement of fixed assets, increase in working capital)
2.2 Liquidation costs
2.3 Cash investments in other funds (purchase of stocks and bonds, deposits)
3 Investment activity balance

When compiling an information table, you need to consider the following nuances:

  • The entire period of implementation of the initiative is divided into segments (steps), according to which economic and financial indicators are evaluated. Most often, a calendar year is taken as such a segment, although in short-term or medium-term undertakings, the step may be a quarter or a month.
  • The positions indicated in the table can be detailed depending on specific conditions.
  • Costs and receipts are indicated in the currency in which they were made, at current prices.
  • The last steps are characterized by the fact that they should take into account the costs of liquidating the enterprise (environmental measures, dismantling of equipment).
  • The level of income from the sale of the remaining fixed assets upon liquidation of the project is advisable to establish using a forecast estimate, which may not coincide with the residual value of the specified property.

In fact, without the investment component, the implementation of the project is not possible. In order to subsequently receive income, it is first necessary to finance the acquisition or lease of a land plot or suitable premises, the purchase of equipment, transport, mechanisms, raw materials, materials, required permits and licenses. Therefore, the curve on the graph at the initial stage goes down sharply, and only after the start of production and the enterprise reaches its design capacity, revenues begin to gradually cover costs.

If the project is long-term, then investments can be made in parts. After a large initial investment, there may be a need for modernization or technical re-equipment to expand the range of products, replace failed equipment, and vehicles. Here the specifics of the work of the enterprise are of great importance. If there are free funds, they can be invested in securities or in the authorized capital of other business entities (purchase of a share or the entire company), as well as issue a loan to another company, this can also be attributed to an outflow from investment activities.

An investor can invest in the company's securities and not take part in its activities, agreeing to receive an agreed amount of dividends annually, in which case his income is called passive. If the investor is on the board of directors, participates in making important decisions that affect the amount of profit, then his income from the investment becomes active.

Let's analyze the types of cash flows of an enterprise: the economic meaning of indicators - net cash flow (NCF) and free cash flow, their construction formula and practical examples of calculation.

Net cash flow. economic sense

Net cash flow (EnglishNetCashflow,Netvalue,NCF, present value) - is a key indicator of investment analysis and shows the difference between positive and negative cash flow for a selected period of time. This indicator determines the financial condition of the enterprise and the ability of the enterprise to increase its value and investment attractiveness. Net cash flow is the sum of the cash flow from the operating, financial and investment activities of the enterprise.

Consumers of net cash flow indicator

Net cash flow is used by investors, owners and creditors to assess the effectiveness of investing in an investment project/enterprise. The value of the net cash flow indicator is used in assessing the value of an enterprise or an investment project. Since investment projects can have a long implementation period, all future cash flows lead to the value at the present time (discounted), resulting in the NPV indicator ( Netpresentvalue). If the project is short-term, then discounting can be neglected when calculating the cost of the project based on cash flows.

Estimation of NCF values

The higher the value of the net cash flow, the more investment attractive the project is in the eyes of the investor and creditor.

Formula for calculating net cash flow

Consider two formulas for calculating net cash flow. So net cash flow is calculated as the sum of all cash flows and outflows of the enterprise. And the general formula can be represented as:

NCF - net cash flow;

CI (Cash inflow) - incoming cash flow, which has a positive sign;

CO (cash outflow) - outgoing cash flow with a negative sign;

n is the number of cash flow evaluation periods.

Let us write in more detail the net cash flow by type of activity of the enterprise; as a result, the formula will take the following form:

where:

NCF - net cash flow;

CFO - cash flow from operating activities;

CFF - cash flow from financing activities;

Example calculation of net cash flow

Let's analyze in practice an example of calculating net cash flow. The figure below shows the way in which cash flows from operating, financial and investment activities are generated.

Types of cash flows of the enterprise

All cash flows of an enterprise that form a net cash flow can be divided into several groups. So, depending on the purpose of use by the appraiser, the following types of cash flows of the enterprise are distinguished:

  • FCFF is the free cash flow of the firm (assets). Used in valuation models by investors and lenders;
  • FCFE stands for free cash flow from equity. It is used in models of valuation by shareholders and owners of the enterprise.

Free cash flow of the firm and capital FCFF, FCFE

A. Damodaran distinguishes two types of free cash flows of an enterprise:

  • The firm's free cash flow (FreeCashflowtofirm,FCFF,FCF) is the cash flow of the enterprise from its operating activities, excluding investments in fixed assets. The free cash flow of a firm is often referred to simply as free cash flow, i.e. FCF=FCFF. This type of cash flow shows how much money the company has left after investing in capital assets. This flow is created by the assets of the enterprise and therefore in practice it is called free cash flow from assets. FCFF is used by the company's investors.
  • Free cash flow to equity (FreeCashflowtoequity,FCFE) is the cash flow of the enterprise only from the equity of the enterprise. This cash flow is usually used by the shareholders of the company.

A firm's free cash flow (FCFF) is used to assess enterprise value, while free cash flow to equity (FCFE) is used to assess shareholder value. The main difference is that FCFF measures all cash flows from both equity and debt, while FCFE measures cash flows from equity only.

The formula for calculating the free cash flow of a firm (FCFF)

EBIT ( Earnings Before Interest and Taxes) – earnings before taxes and interest;

СNWC ( Change in Net Working Capital) - change in working capital, money spent on the acquisition of new assets;

Capital Expenditure) .

J. English (2001) offers a variation of the free cash flow formula for a firm, which looks like this:

CFO ( CAshFlow from Operations)- cash flow from the operating activities of the enterprise;

Interest expensive - interest expenses;

Tax - interest rate income tax;

CFI - cash flow from investing activities.

The formula for calculating free cash flow from capital (FCFE)

The formula for estimating the free cash flow of capital is as follows:

N.I. ( Net Income) is the net profit of the enterprise;

DA - depreciation of tangible and intangible assets;

∆WCR is net capital cost, also called Capex ( Capital Expenditure);

Investment - the amount of investments made;

Net borrowing is the difference between repaid and received loans.

The use of cash flows in various methods for evaluating an investment project

Cash flows are used in investment analysis to evaluate various project performance indicators. Consider the main three groups of methods that are based on any type of cash flows (CF):

  • Statistical methods for evaluating investment projects
    • Payback period of the investment project (PP,paybackperiod)
    • Profitability of the investment project (ARR, Accounting Rate of Return)
    • current value ( n.v.,Netvalue)
  • Dynamic methods for evaluating investment projects
    • Net present value (NPV,Netpresentvalue)
    • Internal rate of return ( IRR, Internal Rate of Return)
    • profitability index (PI, Profitability Index)
    • Annuity equivalent (NUS, Net Uniform Series)
    • net rate of return ( NRR, Net Rate of Return)
    • Net future value ( nfv,NetFuturevalue)
    • Discounted payback period (DPP,Discountedpayback period)
  • Methods taking into account discounting and reinvestment
    • Modified net rate of return ( MNPV, Modified Net Rate of Return)
    • Modified rate of return ( MIRR, Modified Internal Rate of Return)
    • Modified net present value ( MNPV,modifiedpresentvalue)

In all these models for evaluating the effectiveness of the project, cash flows are based on which conclusions are drawn about the degree of project effectiveness. As a rule, investors use the free cash flows of the firm (assets) to estimate these ratios. The inclusion of free cash flows from equity in the calculation formulas allows focusing on assessing the attractiveness of a project/enterprise for shareholders.

Summary

In this article, we examined the economic meaning of net cash flow (NCF), showed that this indicator allows us to judge the degree investment attractiveness project. We considered various approaches in calculating free cash flows, which allows us to focus on the assessment, both for investors and shareholders of the enterprise. Increase the accuracy of investment project evaluation, Ivan Zhdanov was with you.

This beautiful and attractive name encrypts an important business indicator that answers the key question: “Where is the money?”. In this article, we will decipher the components of this indicator in more detail, derive the formula for its calculation and justify the method based on the assessment of net cash flows.

What is net cash flow (NPF)

This term came from in English. In the original, its name sounds like Net Cash Flow, the abbreviation NCF is accepted. In specialized literature, the designation Net Value is sometimes used - “current value”.

cash flow call the movement of funds in the organization: the receipt and disposal of finance and their equivalents. Incoming funds form a positive cash flow (English Cash Inflow, abbreviation CI), leaving - negative, or outflow (Cash Outflow, CO). When will it be considered "clean"?

DEFINITION. If we take a certain time period and trace the inflow and outflow of money during this period, adding up the positive and negative flows, then the resulting value will be Net cash flow, that is, the difference between the inflow and outflow of funds.

This is the key position of investment analysis, which can be used to determine:

  • attractiveness of the organization for potential investors ( economic efficiency investment project);
  • current financial position;
  • the ability of an organization to increase its value.

Components of net cash flow

The company leads different kinds activities that require an outflow of funds and deliver an inflow. Each type of activity "carries" its cash flow. To determine the NPV, the following are taken into account:

  • operating room - OSF flow;
  • financial - FCF;
  • investment - ICF.

AT operating cash flow includes:

  • funds paid by buyers of goods or services;
  • money paid to suppliers;
  • salary payments;
  • social contributions;
  • rent payments;
  • maintaining operations.

AT financial cash flow include:

  • obtaining and repaying credits and loans;
  • interest on loans and borrowings;
  • payment and receipt of dividends;
  • other payments for the distribution of profits.

Investment cash flow includes:

  • remuneration to suppliers and contractors for non-current assets;
  • payment for the delivery and installation of non-current assets;
  • interest on loans for non-current assets;
  • issuance and redemption of various financial assets (bonds, etc.).

NOTE! Sometimes certain receipts or payments can be attributed to different cash flows. For example, if a loan was taken to support the current business, it should be attributed to the FCF, and if its intended purpose is a new business line, this is already the ICF. The specific situation must always be taken into account.

Net cash flow formulas

The general formula for calculating NPV can be represented as follows:

NPV \u003d CI - CO, where:

  • CI - incoming stream;
  • CO - outgoing stream.

If we take into account the grouping of payments by reporting time periods, the formula will take the following form:

NPV \u003d (CI 1 - CO 1) + (CI 2 - CO 2) + ... + (CIN– CON).

In a generalized form, the formula can be represented as follows:

NPV =i=1 n ( CI i – COi), where:

  • CI - incoming stream;
  • CO - outgoing stream;
  • n is the number of cash flow estimates.

NPV can be represented as a set of flows from different types activities of the organization: operating, financial and investment):

NPV \u003d (CI - CO) OSF + (CI - CO)FCF + (CI - CO)ICF.

This division has an important meaning: the final result will not show in which of the activities how it influenced the final flow, which processes had this effect and what are the trends.

NPV calculation methods

The calculation method is selected based on the purpose, as well as on the completeness of the reporting data. Users choose between direct and indirect calculation of NPV. In both cases, it is important to separate flows by activity.

Direct Method for Calculating NPV

It relies on accounting for the movement of funds in the accounts of the organization, reflected in the accounts, in the General Ledger, journals-orders separately for each type of activity. The main indicator is the company's sales revenue.

The direct method allows you to quickly track the inflows and outflows of the organization's funds, control the liquidity of assets, solvency.

NOTE! This method is used for the cash flow reporting form developed by the Ministry of Finance of the Russian Federation and approved by Order No. 4N dated January 13, 2000 No. 4N “On Forms of Accounting Statements of Organizations”.

To calculate NPV using this method, you need to add positive flows (revenue, other receipts) and subtract costs, tax payments and other negative flows from them.

The direct method, unfortunately, does not allow linking the final financial result (net profit) with changes in monetary assets.

Indirect method for calculating NPV

This method, in contrast to the direct method, shows the relationship between cash flows and financial results.

Net income is not exactly the same as cash flow growth. A more in-depth study says that profits can be both less than NPV and more than it. For example, in the analyzed period, they purchased new equipment, that is, increased costs, which will lead to an increase in profits not in this, but only in the following periods. They took out a loan - the cash flow increased, but the net profit did not increase. The main differences between NPV and net profit are shown in Table 1.

Tab. 1 Difference between net cash flow and net income

№ NPV Net profit
1. Movement of money in real time The amount of money at the end of the reporting period
2. Shows the actual receipt of funds for a certain period of time (reporting period) Shows income for this time period
3. Accounts for all receipts Does not take into account a number of cash receipts (loans, grants, sponsorship, investments, etc.)
4. Accounts for all payouts Does not take into account a number of cash payments (repayment of loans, loans).
5. Does not include row cash costs(depreciation, deferred expenses) Takes into account all costs
6. A high score indicates financial well-being A high indicator does not necessarily indicate free cash

The indirect method converts net income into cash flow indicators by making adjustments, namely:

  • depreciation charges;
  • movements on liabilities;
  • changes in assets.

The indicators are taken from the balance sheet and its appendices, the financial report, the General Ledger.

To calculate NPV by the indirect method, it is necessary to sum up the indicators of net profit and the amount of depreciation of tangible and intangible assets, as well as the delta (decrease or increase) of accounts payable and reserve funds, then subtract the delta of receivables and inventories. Thus, it is clear how the movement of figures on the balance sheet affects the net cash flow - changes in the value of assets and liabilities.

Estimation of the NPV indicator

NPV is greater than zero(positive cash flow) can arise either due to an increase in liabilities or a decrease in assets. In any case, the receipt of funds is greater than their outflow. This indicates the investment attractiveness of the company in this period. To evaluate an investment project, one should take into account a long period, including the payback period of investments, and apply. The greater the value, the more attractive the project will be for investors.

When comparing the net cash flows of two different organizations, the one with the higher this indicator will be considered more investment attractive.

NPV is close to zero- this indicator indicates that the organization does not have enough funds to increase the value. Investors reject such projects.

NPV is less than zero(negative cash flow) - the outflow of funds exceeds their receipt. The enterprise is financially unprofitable, of course, investments in it are unacceptable.