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 comes from the English language. 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 of the investment project);
• current financial position;
• the ability of an organization to increase its value.

Components of net cash flow

The company conducts various 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 is 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.

You can imagine NPV as a set of flows from different types of 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

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.

In business economics, the phrase "net cash flow" is often used. In foreign literature, the term Net Cash Flow is used. This is the difference between two values, positive cash flow and minus cash flow. The first value is the receipt of money, and the second is their expenditure. The concept of net cash flow is applicable to a certain time in the context of its certain intervals.

How to calculate net cash flow

To find net cash flow, economists use the formula:

NCF = CF + - CF - (1)

• where CF + - means a positive cash flow, or receipt of funds;
• CF - - a flow with a minus sign, in other words, spending money.

As a rule, individual payments within the same cash flow are grouped by time intervals. Such time intervals are accounting reporting periods - month, quarter, year. Therefore, taking as N the number of time intervals, we write the expression for the net flow as follows:

NCF = NCF 1 + NCF 2 +…+ NCF N (2)

NCF = (CF 1+ - CF 1-)+ (CF 2+ - CF 2-)+…+ (CF N+ - CF N-) (3)

Cash flow discount operation

Quite often, a situation arises when payments are made for several months or years.

For example, you need to evaluate the economic efficiency of future investments. To do this, it is necessary to discount the net flow, which is directly related to the investment project. This economic value is called net present value, or NPV, Net Present Value.

It can be represented as a cash flow characterizing the income and expenses generated by this activity. Making decisions related to capital investments is an important stage in the activity of any enterprise. A thorough analysis of future cash flows associated with the implementation of developed operations, plans and projects.

Estimated cash flows carried out by discount methods, taking into account the concept of the time value of money.

The task of the financial manager is to select such projects and ways of their implementation that will provide a cash flow that has the maximum present value compared to the amount of required capital investments.

Investment project analysis

There are several methods for assessing the attractiveness of investment projects and, accordingly, several main indicators of the effectiveness of cash flows generated by projects. Each method basically has the same principle: as a result of the project, the enterprise should receive a profit(the equity capital of the enterprise should increase), while various financial indicators characterize the project from different angles and may meet the interests of various groups of people related to this enterprise (owners, creditors, investors, managers).

First step analysis of the effectiveness of any investment project - calculation of the required capital investments and forecast of the future cash flow generated by this project.

The basis for calculating all indicators of the effectiveness of investment projects is the calculation net cash flow, which is defined as the difference between current income (inflow) and expenses (outflow) associated with the implementation of the investment project and measured by the number of monetary units per unit of time (monetary unit / unit of time).

In most cases, capital investments occur at the beginning of the project at the zero stage or during the first few periods, followed by cash inflows.

From a financial point of view, current income and expense flows, as well as net cash flow, fully characterize an investment project.

Cash flow forecasting

When forecasting cash flow, it is advisable to forecast the data of the first year by months, the second year by quarters, and for all subsequent years by total annual values. This scheme is recommended and in practice should correspond to the conditions of a particular production.

A cash flow for which all negative elements precede positive ones is called standard(classic, normal, etc.). For non-standard flow, alternating positive and negative elements are possible. In practice, such situations most often occur when the completion of the project requires significant costs (for example, the dismantling of equipment). Additional investments may also be required in the process of project implementation related to environmental protection measures.

• cash flows exactly correspond to the theory of the value of money in time - the basic concept of financial management;
• cash flows - a precisely defined event;
• using real cash flows avoids the problems associated with memorial accounting.

When calculating cash flows, take into account all those cash flows that change due to this decision:

• costs associated with production (building, equipment and equipment);
• changes in receipts, income and payments;
• taxes;
• changes in the amount of working capital;
• the opportunity cost of using scarce resources that are available to the firm (although this need not be directly related to cash costs).

should not be taken into account those cash flows that do not change in connection with the adoption of this investment decision:

• past cash flows (costs incurred);
• cash flows in the form of costs that would be incurred regardless of whether the investment project is implemented or not.

There are two types of costs that make up the total required capital investment.

1. direct costs, necessary to launch the project (construction of buildings, purchase and installation of equipment, investments in working capital, etc.).
2. Alternative costs. Most often, this is the value of used premises or land that could generate profit in another operation (alternative income) if they were not occupied for sale.
   project.

When forecasting future cash flow, it must be borne in mind that the recovery of costs associated with the necessary increase in the working capital of the enterprise (cash, inventory or receivables) occurs at the end of the project and increases the positive cash flow related to the last period.

The final result of each period, which forms the future cash flow, is the amount of net profit, increased by the amount of accrued depreciation and accrued interest on borrowed funds (interest has already been taken into account when calculating the cost of capital and should not be counted twice).

In general, the cash flow generated by an investment project is a sequence of elements INV t , CF k

• INV t - negative values ​​corresponding to cash outflows (for a given period, the total costs of the project exceed the total income);
• CF k are positive values ​​corresponding to cash inflows (revenues exceed expenses).

Since planning for the future cash flow is always carried out under conditions of uncertainty (it is necessary to predict future prices for raw materials and materials, interest rates, wages, sales volume, etc.), it is desirable to consider at least three possible implementation options to take into account the risk factor - pessimistic, optimistic and most realistic. The smaller the difference in the resulting financial indicators for each option, the more stable the project is to changes in external conditions, the lower the risk associated with the project.

Key indicators related to cash flow estimation

An important step in assessing cash flows is analysis of the financial capabilities of the enterprise, the result of which should be the value of the cost of capital of the enterprise with different volumes required.

WACC value is the basis for making financial and investment decisions, since in order to increase the capital of an enterprise, the following conditions must be met: the cost of capital is less than the return on investment.

The value of the weighted average cost of capital WACC in most cases is chosen as the discount rate when estimating future cash flows. If necessary, it can be adjusted for indicators of the possible risk associated with the implementation of a particular project and the expected level of inflation.

If the calculation of the WACC indicator is associated with difficulties that cast doubt on the reliability of the result obtained (for example, when assessing equity), you can choose the average market return adjusted for the risk of the analyzed project as the discount rate.

In some cases, the value of the discount rate is taken equal to that of the Central Bank.

Payback period of the investment project

The calculation of the payback period of investments is often the first step in the process of deciding on the attractiveness of a particular investment project for an enterprise. This method can also be used to quickly screen out projects that are unacceptable in terms of liquidity.

Most of all, creditors of the enterprise are interested in calculating this indicator, for which the fastest payback is one of the guarantees for the return of the funds provided.

In the general case, the desired value is the value !!DPP??, for which !!DPP = min N??, for which ∑ INV t / (1 + d) t more or equal ∑ CF k / (1 + d) k, where is the discount rate.

The decision criterion when using the payback period calculation method can be formulated in two ways:

• the project is accepted if the payback as a whole takes place;
• the project is accepted if the found DPP value lies within the specified limits. This option is always used when analyzing projects with a high degree of risk.

When choosing projects from several possible options projects with a shorter payback period will be preferred.

Obviously, the value of the payback period is higher, the higher the discount rate.

A significant disadvantage of this indicator as a criterion for the attractiveness of the project is ignoring positive cash flow values beyond the calculated period . As a result, a project that in general would bring more to the enterprise over the entire period of implementation may turn out to be less attractive according to the criterion !!DPP?? compared to another project that brings a much lower final profit, but more quickly recovers the initial costs. (By the way, this circumstance does not worry the creditors of the enterprise at all.)

This method also does not distinguish between projects with the same !!DPP?? value, but with a different distribution of income within the calculated period. Thus, the principle of the time value of money is partially ignored when choosing the most preferred project.

Net present (discounted) income

NPV indicator reflects a direct increase in the capital of the company, therefore, for the shareholders of the enterprise, it is the most significant. The calculation of net present value is carried out according to the following formula:

NPV = ∑ CF k / (1 + d) k - ∑ INV t / (1 + d) t.

The project acceptance criterion is a positive valueNPV. In the case when it is necessary to make a choice from several possible projects, preference should be given to the project with a larger value of net present value.

At the same time, it should be taken into account that the ratio of NPV indicators of various projects is not invariant with respect to a change in the discount rate. A project that was more preferable by the NPV criterion at one rate value may turn out to be less preferable at another value. It also follows from this that PP and NPV indicators can give conflicting estimates when choosing the most preferred investment project.

To make an informed decision and take into account possible changes in the rate (usually corresponding to the cost of invested capital), it is useful to analyze the graph of NPV versus d. For standard cash flows, the NPV curve is monotonically decreasing, tending with increasing d to a negative value equal to the present value of invested funds (∑ INV t / (1 + d) t). The slope of the tangent at a given point on the curve reflects the sensitivity of the NPV indicator to a change in d. The larger the slope, the more risky this project is: a slight change in the market situation that affects the discount rate can lead to major changes in the predicted results.

For projects that have large incomes in the initial periods of implementation, the possible changes in net present value will be less (obviously, such projects are less risky, since the return on investment is faster).

When comparing two alternative projects, it is advisable to determine the value barrier the rate at which the net present value of the two projects are equal. The difference between the discount rate used and the barrier rate will represent a margin of safety in terms of the advantage of a project with a larger NPV. If this difference is small, then an error in the choice of rate d can lead to the fact that a project will be accepted for implementation, which in reality is less profitable for the enterprise.

Internal rate of return

The internal rate of return corresponds to the discount rate at which the present value of the future cash flow coincides with the amount of invested funds, i.e. satisfies the equality

∑ CF k / (1 + IRR) k = ∑ INV t / (1 + IRR) t.

Finding this indicator without the help of special tools (financial calculators, computer programs) in the general case involves solving an equation of degree n, therefore it is quite difficult.

You can use a graphical method to find the IRR corresponding to normal cash flow, given that the NPV value turns to 0 if the discount rate matches the IRR value (this can be easily seen by comparing the formulas for calculating NPV and IRR). This fact is based on the so-called graphical method for determining the IRR, which corresponds to the following approximate calculation formula:

IRR = d 1 + NPV 1 (d 2 - d 1) / (NPV 1 - NPV 2),

where d 1 and d 2 are rates corresponding to some positive (NPV 1) and negative (NPV 2) values ​​of net present value. The smaller the interval d 1 - d 2, the more accurate the result. With practical calculations, a difference of 5 percentage points can be considered sufficient to obtain a fairly accurate value of the IRR value.

The criterion for accepting an investment project is the excess of the IRR indicator of the selected discount rate. When comparing several projects, projects with large IRR values ​​will be more preferable.

In the case of a normal (standard) cash flow, the condition IRR > d is fulfilled simultaneously with the condition NPV > 0. Decision-making according to the NPV and IRR criteria gives the same results if the question of the possibility of implementing a single project is considered. If several different projects are compared, these criteria may give conflicting results. It is believed that in this case the indicator of net present value will be a priority, since, reflecting an increase in the equity capital of the enterprise, it is more in the interests of shareholders.

Modified internal rate of return

For non-standard cash flows, the solution of the equation corresponding to the definition of the internal rate of return, in the vast majority of cases (non-standard flows with a single IRR value are possible) gives several positive roots, i.e., several possible values ​​of the IRR indicator. In this case, the IRR > d criterion does not work: the IRR value may exceed the discount rate used, and the project under consideration turns out to be unprofitable.

To solve this problem in the case of non-standard cash flows, an analogue of IRR is calculated - a modified internal rate of return MIRR (it can also be calculated for projects generating standard cash flows).

MIRR is the interest rate at which, during the project implementation period n, the total amount of all discounted investments at the initial moment is accumulated, a value equal to the sum of all cash inflows accrued at the same rate d at the end of the project implementation is obtained:

(1 + MIRR) n ∑ INV / (1 + d) t = ∑ CF k (1 + d) n - k .

Decision criterion MIRR > d. The result is always consistent with the NPV criterion and can be used to evaluate both standard and non-standard cash flows.

Rate of return and index of profitability

Profitability is an important indicator of the effectiveness of investments, since it reflects the ratio of costs and income, showing the amount of income received for each unit (ruble, dollar, etc.) of invested funds.

P = NPV / INV 100%.

Profitability index (profitability ratio) PI - the ratio of the present value of the project to the costs, shows how many times the invested capital will increase during the implementation of the project:

PI = [∑ CF k / (1 + d) k ] / INV = P / 100% + 1.

The criterion for making a positive decision when using profitability indicators is the ratio P > 0 or, equivalently, PI > 1. Of several projects, those with higher profitability indicators are preferable.

The profitability criterion can give results that contradict the criterion of net present value if projects with different amounts of invested capital are considered. When making a decision, it is necessary to take into account the financial and investment capabilities of the enterprise, as well as the consideration that the NPV indicator is more in the interests of shareholders in terms of increasing their capital.

At the same time, it is necessary to take into account the influence of the projects under consideration on each other, if some of them can be accepted for implementation simultaneously and on projects already being implemented by the enterprise. For example, the opening of a new production facility may lead to a reduction in sales of previously manufactured products. Two projects implemented at the same time can give a result that is both greater (synergy effect) and less than in the case of a separate implementation.

Summing up the analysis of the main indicators of cash flow efficiency, we can highlight the following important points.

Advantages of the PP method (a simple method for calculating the payback period):

• simplicity of calculations;
• accounting for the liquidity of the project.

By cutting off the most dubious and risky projects in which the main cash flows come at the end of the period, the PP method is used as a simple method for assessing investment risk.

It is convenient for small firms with low cash turnover, as well as for express analysis of projects in conditions of lack of resources.

Disadvantages of the RR method:

• the choice of the barrier value of the payback period can be subjective;
• the profitability of the project beyond the payback period is not taken into account. The method cannot be applied when comparing options with the same payback periods, but different lifetimes;
• the time value of money is not taken into account;
• not suitable for evaluating projects related to fundamentally new products;
• the accuracy of calculations using this method largely depends on the frequency of dividing the life of the project into planning intervals.

Advantages of the DPP method:

• takes into account the time aspect of the value of money, gives a longer payback period than RR, and takes into account more cash flows from capital investments;
• has a clear criterion for the acceptability of projects. When using the DPR, the project is accepted if it pays for itself within its lifetime;
• the liquidity of the project is taken into account.

The method is best used to quickly screen low-liquid and high-risk projects under conditions
high level of inflation.

Disadvantages of the DPP method:

• does not take into account all cash flows received after the completion of the project period. But, since DPP is always greater than PP, DPP excludes a smaller amount of these cash receipts.

Advantages of the NPV method:

• focused on increasing the welfare of investors, therefore, is fully consistent with the main goal of financial management;
• takes into account the time value of money.

Disadvantages of the NPV method:

• it is difficult to objectively estimate the required rate of return. Its choice is crucial in NPV analysis, as it determines the relative value of cash flows over different time periods. The rate used in estimating NPV should reflect the required risk-adjusted rate of return;
• it is difficult to assess such uncertain parameters as the moral and physical depreciation of fixed capital; changes in the activities of the organization. This may lead to an incorrect assessment of the useful life of fixed assets;
• The NPV value does not adequately reflect the result when comparing projects:
  • with different initial costs for the same value
    pure real;
  • with a higher net present value and a long payback period and projects with a lower net present value and a short payback period;
• may give conflicting results with other indicators of cash flows.

The method is most often used when approving or rejecting a single investment project. It is also used in the analysis of projects with uneven cash flows to assess the value of the internal rate of return of the project.

Advantages of the IRR method:

• objectivity, informativeness, independence from the absolute size of investments;
• gives an estimate of the relative profitability of the project;
• can be easily adapted to compare projects with different levels of risk: projects with a high level of risk should have a large internal rate of return;
• does not depend on the discount rate chosen.

Disadvantages of the IRR method:

• complexity of calculations;
• possible subjectivity of the choice of normative return;
• greater dependence on the accuracy of estimates of future cash flows;
• implies the mandatory reinvestment of all income received, at a rate equal to IRR, for a period until the end of the project;
• not applicable for estimating non-standard cash flows.

The most commonly used method, due to the clarity of the results obtained and the possibility of comparing them with the yield of various market financial instruments, is often used in combination with the payback period method

Advantages of the MIRR method:

• gives a more objective assessment of the return on investment;
• less likely to conflict with the NPV criterion;

Disadvantages of the MIRR method:

• depends on the discount rate.

MethodMIRRused in the same cases as the methodIRRin the presence of uneven (non-standard) cash flows that cause a problem of multiplicityIRR.

Advantages of the methodPandPI:

• the only one of all indicators reflects the ratio of income and costs;
• gives an objective assessment of the profitability of the project;
• applicable to the evaluation of any cash flows.

Disadvantages of the methodPandPI:

• may give conflicting results with other indicators.

The method is used when the payback method and the methodNPV (IRR) give inconsistent results, and also if the value of the initial investment is important for investors.

Analysis of criteria for the effectiveness of investment projects. Comparison of NPV and IRR.

1. If the NPV and IRR criteria are applied to such a single project in which only cash receipts occur after the initial cash outlay, then the results obtained by both methods are
   agree with each other and lead to identical decisions.
2. For projects with other cash flow schedules, the value of the internal rate of return IRR can be as follows:

• no IRR:
  • a project in which there is no cash flow always has a positive NPV value; in this regard, there is no IRR in the project (where NPV = 0). In this case, IRR should be discarded and NPV should be used. Since NPV > 0, this project should be accepted;
  • a project with no cash flow always has a negative NPV, and such a project has no IRR. In this case, IRR should be discarded and NPV should be used; because NPV< 0, то данный проект следует отвергнуть;
• opposite IRR. A project that first has cash inflows and then cash outflows has an IRR that is never consistent with NPV (a low IRR and a positive NPV will occur at the same time);
• multiple IRRs. A project that alternates cash inflows and outflows will have as many internal rates of return as there are reversals in the direction of cash flows.

3. Project ranking is necessary if:

• projects are alternative to be able to choose one of them;
• the amount of capital is limited, and the company is not able to raise enough capital to implement all good projects;
• there is no agreement between NPV and IRR. In the case of using two methods simultaneously: NPV and IRR, different rankings often occur.

Causes of discrepancy between the results of the IRR and NPV methods for several projects

Project lead time – Long-term projects may have low IRRs, but over time their net present value may be higher than short-term projects with high rates of return.

Choice between IRR and NPV:

• if we use the NPV method as a criterion for choosing an investment project, then it leads to the maximization of the amount of cash, which is equivalent to the maximization of the cost. If this is the goal of the firm, then the net present value method should be used;
• if the IRR method is used as a selection criterion, it leads to the maximization of the firm's growth percentage. When a firm's goal is to increase its value, the most important characteristic of investment projects is the degree of return, the ability to earn cash to reinvest them.

Estimation of cash flows of different duration

In cases where there is doubt about the correctness of the comparison using the considered indicators of projects with different implementation periods, one of the following methods can be resorted to.

Chain repeat method

When using this method, find the least common multiple of the implementation time and estimated projects. They build new cash flows resulting from several project implementations, assuming that costs and incomes will remain at the same level. The use of this method in practice can be associated with complex calculations if several projects are considered, and in order to match all the deadlines, each will need to be repeated several times.

Equivalent annuity method

This method implies simpler calculations carried out in the following stages for each of the considered projects:

Projects with a higher value are preferred.

At the same time, the re-implementation of the project is not always possible, especially if it is long enough or relates to areas where there is a rapid technological renewal of manufactured products.

In addition to the considered quantitative indicators of the effectiveness of capital investments, when making investment decisions, it is necessary to take into account the qualitative characteristics of the attractiveness of the project, corresponding to the following criteria:

• compliance of the project under consideration with the general investment strategy of the enterprise, its long-term and current plans;
• possible impact on other projects implemented by the enterprise;
• the prospects of the project in comparison with the consequences of refusing to implement alternative projects;
• compliance of the project with the accepted regulatory and planned indicators regarding the level of risk, financial stability, economic growth of the organization, etc.;
• ensuring the necessary diversification of the financial and economic activities of the organization;
• compliance of the project implementation requirements with the available production and human resources;
• social consequences of the project implementation, possible impact on the reputation, image of the organization;
• compliance of the project under consideration with environmental standards and requirements.

The main disadvantage of the considered methods is the assumption that the conditions for the implementation of projects, and hence the required costs and revenues will remain at the same level, which is almost impossible in the current market situation.

Instruction

The method of calculating the net cash flow at the enterprise is used by its financial departments to control the receipt and expenditure of funds, the analysis of the financial balance of the organization. It is recommended to do this not only when compiling mandatory reporting, but also after each specific period, for example, a quarter.

The direct approach involves the transformation of each report item and most fully reflects the cash flow. The indirect approach is based on the amount of net profit calculated on an accrual basis. It is then adjusted to net income on a cash basis, adding expenses (such as depreciation) and subtracting non-flow income.

Under the analysis of the cash flow of the main (operational) activities of the company understand the movement of funds aimed at the implementation of business operations (acquisition of raw materials and equipment, sale of finished goods, payment of salaries to employees, interest on loans, taxes). This flow is the starting point in determining the financial stability of the enterprise.

The investment activity of the company is aimed at investing in fixed assets, securities, lending, etc. An analysis of the cash flow of investments helps to make the most rational use of temporarily free funds of the company.
The financial activity of the company involves the provision of two other activities, namely, obtaining loans, income from the sale of the company's own shares. Expenses in this case represent the payment of dividends and the repayment of loans.

Tip 3: What are cash flows and how they are classified

The competitiveness of an organization really depends on how it controls the direction of cash flows. When assessing the financial position of the enterprise, this indicator plays a very important role. There are different types of cash flows.

What is cash flow?

Translated from English, this economic term is like "cash flow". In fact, cash flow is the process of movement of the company's financial resources over a certain period of time. This refers to the difference between payments and receipts of money for a certain period. This indicator is extremely important, as it helps to identify how the movement of funds not taken into account when making a profit is carried out. We are talking about tax payments, loan payments, etc.

Main types of cash flows

There are many classifications of cash flows. Depending on the scale of servicing the business processes of the flow, they are divided into those that are distributed throughout the enterprise, by structural units (responsibility centers) and specific operations (the primary object of resource control).

Also, cash flows differ by type of economic activity. They may be related to payments (operating activities), to loans and raising additional funds (financing activities), or represent payments from investments (investing activities).

Depending on the end result, cash flows are negative and positive. This is an influx of finance. According to the level of sufficiency, this indicator is divided into excess and deficit. According to the method of evaluation over time, cash flows are classified into future and present.

Often in enterprises they talk about net or gross cash flow. Net flow is the difference between receipts and expenditures. Gross cash flow is all negative and positive cash flows for a certain period.
Such an indicator may be associated with operating activities or be the result of single business transactions. In the first case, we are talking about a regular cash flow, and in the second, a discrete one.

Cash flows can be formed during different time intervals. Depending on the stability of these intervals, they are divided into regular with regular intervals (annuity) and regular with uneven time intervals (leasing payments with a special payment schedule). The above classification allows you to more deeply study and analyze the cash flows of various enterprises.