Module 5Determining Cashflow

Importance of cashflow statement

• Essentially, setting the scene for what is about to follow.

• How and where revenue is being generated.

It describes the various revenue streams the business will be putting in place and how each revenue stream will bring in money.

The ability of the business to generate enough cash to meet financial obligations without disrupting the business operations.

Liquidity.

Cost of OperationsLoan Repayments

Capital Asset PurchasesInvestmentsDividends

Taxes

Cash Reserve

Sales Collection

Other Income

Equity

Loans

Generally, companies that have a lot of working capital will be more successful since they can expand and improve their operations.

Companies with negative working capital may lack the funds necessary for growth.

Working Capital.

It represents the amount of day-by-day operating liquidity (cash reserve) available to the business and how much in liquid assets a company has available to build its business.

WORKING CAPITAL = Current Assets - Current liabilities

Current AssetsInventoryDebtorsDepositsCash

Current LiabilitiesCreditorsLoansTaxation, EPF, SocsoBonusDividend

Working Capital Cycle

Cash Reserves

Cash Payments

Revenue

Production

Withdrawals – dividend etc

Equity & Loans

Financial needs = working capital + fixed assets + operational costs + contingencies

Working CapitalWorking CapitalMeet day-to-day operating costs;

 Fixed AssetsFixed AssetsInvestment in land, buildings, equipment,

etc.,Operational CostsOperational Costs

Marketing, production, administration, etc.ContingenciesContingencies

Meet possible changes in environment.

Managing Cashflow/Working Capital

The goal is to ensure that the business:~ is able to continue its operations; ~ has the ability to satisfy maturing short-term debt; and ~ meet operational expenses.

Determining Cashflow Statement