Cash Flow Analysis – The Best Way to Understand Operating Expenses

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Cash Flow Analysis – The Best Way to Understand Operating Expenses 

When you are going to launch your new business or want to enlarge your existing one, a proper cash flow analysis might be the door of your success. This might be the best solution for your cash flow crisis as it provides the best possible ways by analysing the market constrains and thus making your business planning easy. It is quite common in every business firm to engage in the operation of receiving and making cash payments, which is termed as cash flow. The cash flow simply means the records of all cash flows of the industry related to its various activities, covering a specific forecasting horizon divided into one or more suitable accounting periods, or it may record cash flows pertaining to previous period.  The direction, volume, and the timing of these cash flows reflect and determine the financial health of the firm in the future. Despite the fact that an organization has adequate assets at its disposal, it may still find itself unable to make some immediately required cash payment, such as, to its creditors, suppliers, workers or tax authorities. This kind of situation is called insufficient liquidity, that is, not available of readily useable means of payments. Such an unsolved liquidity problem may lead a firm to default a payment or even make it bankrupt. Therefore, it is imperative for any organization to analyze these cash flows very carefully, and when needed, take some appropriate steps to avoid such an unsavoury situation.


Now, let’s come to the structure of cash flow analysis. It can be categorized into three parts: operating, investing and financing. But before going into this section, it will be good for you to know about cash inflows and cash outflows. Cash inflow means the amount of money received by any organization and cash outflow means the money invested by an organization or simply the expenses of a company.

  • Operating activities – This part of the cash flow statement of an organization includes the inflows like sales of goods, interest received, dividend received, and other cash receipt not directly identified with financial or investing activities. The main outflows of cash include goods purchase for resale or for use as an input, payments for notes to suppliers of trade goods, payment to the supplier, payment to employees, payment to taxes, fees, fines and interest, and other payments not directly identified with financing and investing activities.
  • Financing activities – The category covers the areas of equity and debt financing. The financing section details the cash flows between the firms and its financiers. It should be noted that the interest paid on the debt is not included in this field. It is the matter of operating activities where it is included. The cash inflows of this category include cash receipt from borrowing and cash proceeds from the sale of own stock. The outflows of financing activity are cash paid for acquiring entity instruments, dividends paid to stock holders, and cash disbursed to repay debt obligations.
  • Investing activities: this category represents investment and disinvestment of a firm both within itself and in other firms, including physical and financial assets. Investing within itself would include acquisition of various productive assets, such as machinery and equipment, replacements, repurchasing of its own stocks and bonds. On the other hand, its disinvestments within itself would include disposal of various productive assets as also surplus assets in the form of land, building, and the facilities like allowing the display or sale of goods of some other firms from its own sales outlets. In this category of cash flow statement, the cash inflows may include sale of equity investment, recovery of loans from debtors, sale of productive assets, and leasing of sales outlets or parts thereof. Similarly, the outflows are purchase of equity interest of other entities and purchase of productive assets.

Cash Flow Plan

When it comes to calculating the cash inflows and outflows of an organization, the budgeting software plays a huge by making the entire cash flow analysis simpler and easier. This software can produce the forecast of entire cash flows within just a few minutes.  This, therefore, helps you to predict peaks and dips of your funding and thus it gives you the opportunity to make a good annual budget for your company. It is also essential when you are going to take out loan, as most banks ask for a forecast report before approving the loan. Actually this kind of software maintain cash inflows and out flows in the form of a report, but at the time of installing this software, it should be in your mind that all the requirements that you have, can be fulfilled by this software. Basically it calculates cash flows of one company over a period of time, and thus it helps you when you are short of funds. Irrespective of the level of the business, this software is very famous among most of the business owners, and recently it has been updated.

This small business software is also imperative in the case of future transaction. In early days, the entire budgeting report had to be maintained manually. This is why it required a huge time to make a proper cash flow analysis, and a slight change or mistake used to force the entire report to reconstruct. However, thank to the modern technology that helps to develop more advanced software by which any type changes can easily be updated by the software itself. You can search internet to get the best cash flow software that can meet all your business requirements. In this case, cash flow mojo can really help you by proving the information about the personal experience with PTC, HYIPs and many other online programs.

Cash Flow Analysis – The Best Way to Understand Operating Expenses