MINISTRY OF EDUCATION AND SCIENCE OF THE REPUBLIC OF KAZAKHSTAN

ALMATY MANAGEMENT UNIVERSITY

SCHOOL/FACULTY “SCHOOL OF FINANCE AND MANAGEMENT”

DEPARTMENT “FINANCE, ACCOUNTING AND AUDITING”

SUBJECT – FINANCIAL MANAGEMENT

Coursework

on the subject “Financial Management”

Management of Cash Flows of the Company

Completed by the 4th year student

of “Finance” specialization

F-1202

Rozmuradova S.B

Checked by: Yelubaeva Zh.M.

d.e.sc.Prof.

Almaty, 2015 content

INTRODUCTION………………………………………………………………….3

CHAPTER I. CONTENTS AND TECHNIQUE OF MANAGEMENT OF IN CASH OF THE ENTERPRISE…………………………………………………... 4

1.1. Purposes and organization of management of enterprise cash flows 4

1.2. Models and methods of target regulation monetary flows 7

CHAPTER II ANALYSIS OF MONETARY FUNDS MOVEMENTS 13

2.1. Structure and the analysis of inflows and outflows of money activity, the analysis of interaction monetary flows 13

2.2. Forecasting and optimization of monetary cash 22

CHAPTER III. IMPROVEMENT OF MANAGEMENT OF ENTERPRISE MONETARY FUND 39

Conclusion 57

List of literature 58

Introduction

Cash flow of firm represents continuous process. For each direction of use of monetary funds there has to be a relevant source. In a broad sense assets of firm represent pure use of money, and liabilities and own capital - pure sources. For the operating enterprise really there is no initial and final point. The final product is a set of expenses of raw materials, the fixed assets and work eventually paid with money. Production then is on sale either for cash, or on credit. Sale on credit involves receivables which eventually are collected, turns into cash. If sale price of production exceeds all expenses (including wear of assets) for some period, for this period the profit will be got; the mudflow isn't present - a loss. Amount of money fluctuates in time depending on the production schedule, sales volume, collection of receivables, capital expenses and financing. On the other hand, raw materials stocks, a work in progress, reserve; finished goods, receivables and the commercial credit which is subject to payment fluctuate depending on realization, the production schedule and policy for the main debtors, stocks and debt on the commercial credit.

The report on existence and use of money is a method by means of which we study pure change of volume of means between two moments. These moments correspond to initial and final dates of the financial report, research - to quarter, year or the fifth anniversary belonged to whatever period. The report on sources and use of money describes rather pure, than the general changes in a financial position for different dates. The general changes are all changes which happen between two reporting dates, and pure changes are defined as result of the general changes.

The purpose of the real work is research of a technique of management of in cash of the enterprise with use of the analysis of cash flows, and also development of ways on optimization of funds of the enterprise and improvement of ways on their management.

CHAPTER I. CONTENTS AND TECHNIQUE OF MANAGEMENT OF IN CASH OF THE ENTERPRISE

1.1. Purposes and organization of management of cash flows of the enterprise

Management of cash flows is one of the most important activities of the financial manager. It includes calculation of time of the address of money (a financial cycle), the analysis of a cash flow, its forecasting, definition of an optimum level of money, drawing up budgets of money, etc. The importance of such type of assets as money, according to John Keynes, is defined by three main reasons:

- conventionalism money is used for performance of the current operations as between the entering and proceeding cash flows always there is a time log, the enterprise is compelled to hold constantly free money on the settlement account;

- precaution - activity of the enterprise has no rigidly predetermined character therefore money is necessary for performance of unforeseen payments;

- speculatively - money is necessary for speculative reasons as constantly there is a nonzero probability of that opportunity of favorable investment will unexpectedly be given.

At the same time necrosis of financial resources in the form of money is connected with certain losses - with some share of convention their size can be estimated the extent of the missed benefit from participation in any available investment project. Therefore any enterprise has to consider two mutually excluding circumstances: maintenance of the current solvency and receiving additional profit on investment of free money. Thus, one of the main objectives of management of monetary resources is optimization of their average current rest.

Existence at the enterprise of money quite often we contact, whether its activity is profitable or not. However such communication isn't always obvious. Events of the last years when the problem of mutual non-payments sharply became aggravated, call in question absolute firmness of direct link between them indicators. It appears, the enterprise can be profitable according to accounting and at the same time experience considerable difficulties in current assets which finally can cause not only social economic intensity in relationship with contractors, financial bodies, workers, but in a final step (still theoretically) to result in bankruptcy.

The operational cycle characterizes the general time during which financial resources are deadened in stocks and receivables. As the enterprise pays bills of suppliers with a temporary log, time during which money is abstract from a turn, i.e. a financial cycle, it is less on the average time of the address of accounts payable. Reduction of operational and financial cycles in dynamics is considered as a positive tendency. If reduction of an operational cycle can be made due to acceleration of production and turnover of receivables, the financial cycle can be reduced both at the expense of these factors, and due to some noncritical delay of turnover of accounts payable.

Thus, the duration of a financial cycle (DFC) in days of a turn pays off on a formula

DFC=DOC-TAP=TAS+TAR-TAP

where:

DOC - duration of an operational cycle;

TAP - time of the address of accounts payable;

TAS - time of the address of production stocks;

TAR - time of the address of receivables.

T - length of the period on which average values pay off (as a rule, year, i.e. T=365).

Information support of calculation - accounting reports. Calculation can be carried out in two ways: a) according to all available information about receivables and payables; b) by data about the receivables and payables which is directly relating to production.

The purpose of management of money consists in investing surplus of the monetary income for receiving profit, but at the same time to have their necessary size for implementation of obligations for payments and simultaneous insurance on a case of unforeseen situations. The cash flows of firm are more predictable, the need for insurance is less. Management of money begins the buyer (debtor) of the check for payment of production with the extract moment and comes to an end with payments to creditors, the personnel, budgets, etc. to persons. Thus management of money is closely connected with management of accounts payable because managers of firm regulate terms of its payment.

It is necessary to allocate "inflows" and "outflows" of money on the primary (operational) activity, investment and financial to kinds of activity.

Kinds of activity. Inflows of money. Outflows of money

Table 1.1 Components of a cash flow

Operational	Monetary proceeds from sales of production in the current period. Repayment receivables. Receipt from barter sale. The advance payments received from buyers.	Capital transfers of suppliers and contractors. Payment of a salary. Contribution to the budget and off-budget funds. Payment of percent for the credit. Assignments on the social sphere.
Financial	Short-term credits and loans. Long-term credits and loans. Receipts from issue of shares. Target financing.	Return of the short-term credits and loans. Return of the long-term credits and loans. Payment of dividends. Repayment of bills.
Investment	Sale of fixed assets, intangible assets. Dividends, percent from long-term financial investments. Return of other financial investments.	Acquisition of fixed assets, intangible assets. Capital investments. Long-term financial investments.

Liquid securities more are suitable for realization of function of insurance of the current production. (In Russia - the state bonds.) Liquid securities bring to firm some level of the income. Set of money and liquid securities is called cash or liquid assets. When receipts of money and monetary payments are coordinated on a certain prospect, the firm can have rather small stocks of money. But if the risk of mismatches is considerable, investments into short-term liquid securities are necessary. Of course, the demanded volume of cash increases if the part of transactions is paid with cash, and decreases if the firm can quickly obtain the credit on desirable conditions. The interest rate is higher, the interest of firm in decrease in monetary cash is more.

The minimum quantity of monetary cash which the firm has to have on the settlement account and in cash desk, is defined by two processes. The first - a period between payment of account the buyer and encashment of money. This time consists of three parts:

- time of the translation of payments from buyers (receivables aren't considered here, the buyer paid the bill, but on its transfer the firm needs the certain time depending on a form of clearing settlements and overall performance of banks);

- time during which payments remain not collected banks;

- time of cash flow to the banks making payments.

Firms can use many methods of reduction of the period of collection, and consequently, and the demanded stocks of money (wire transfers, system of safes, etc.). But this period will always take place, always there will be transactional expenses.

The second - requirements of commercial banks about formation of the compensation (reserve) remains. These remains are defined by the cost of services of the bank operating settlement accounts and granting the loans. (For example, the bank can serve firm free of charge if not reduced rest on the account not less than 50 million rubles. Otherwise the firm pays each operation of bank).

CHAPTER II ANALYSIS OF CASH FLOW

2.1. Structure and the analysis of inflows and outflows of money on activity, the analysis of interaction of cash flows

The analysis of cash flow is carried out according to the reporting period. At first sight such analysis, as well as any other section of the retrospective analysis, has rather low value for the financial manager; however it is possible to adduce the arguments to a certain extent justifying its carrying out. For example, quite paradoxical situation when the enterprise is profitable, but has no means to pay off with the workers and contractors. Such situation it is quite ordinary in an economy in transition.

Theoretically noted paradox can be avoided is will occur in case at the enterprise consistently and strictly follow a method of definition of sales proceeds in process of payment of goods and services. However the Provision on accounting and the reporting of the Russian Federation it is authorized to apply also other method - a method of definition of sales proceeds in process of shipment of goods and presentation to the buyer of settlement documents. In this case the cash flow and a stream of values and calculations generating profit don't synchronize. The analysis of cash flow just also allows to explain with a known share of accuracy a divergence between the size of the cash flow taking place at the enterprise in the reporting period and the profit got for this period.

Theoretically noted paradox can be avoided is will occur in case at the enterprise consistently and strictly follow a method of definition of sales proceeds in process of payment of goods and services. However the Provision on accounting and the reporting of the Russian Federation it is authorized to apply also other method - a method of definition of sales proceeds in process of shipment of goods and presentation to the buyer of settlement documents. In this case the cash flow and a stream of values and calculations generating profit don't synchronize. The analysis of cash flow just also allows to explain with a known share of accuracy a divergence between the size of the cash flow taking place at the enterprise in the reporting period and the profit got for this period.

In the western registration and analytical practice the technique of the similar analysis is developed rather in detail and is reduced to the analysis of cash flow in three main directions: current, investment and financial activity. It is possible to take this scheme as a basis, however, proceeding from reality of the financial and economic activities taking place in the domestic enterprises it is expedient to alter some structure of the directions of the kinds of activity in a varying degree connected with cash flow:

-the current (main) activity - receiving sales proceeds, advance payments, payment on accounts of suppliers, receiving the short-term credits and loans, payment of a salary, calculations with the budget, the paid/drawn interest on the credits and loans;

-investment activity - the movement of the means connected with acquisition or realization of fixed assets and intangible assets;

-financial activity - receiving the long-term credits and loans, long-term and short-term financial investments, repayment of debt on the credits obtained earlier, payment of dividends;

-other operations with money - use of fund of consumption, target financing and receipts, gratuitously received money, etc.

The logic of the analysis is rather obvious - it is necessary to allocate whenever possible all operations affecting cash flow. It can be done in various ways, in particular by the analysis of all turnovers of accounts of money (accounts 50, 51,52,55,56,57). However in world registration and analytical practice apply, as a rule, one of two methods known as direct and indirect methods. The difference between them consists in various sequence of procedures of determination of size of cash flow as a result of the current activity:

-the direct method is based on inflow calculation (proceeds from sales of production, works and services, the advance payments received, etc.) and outflow (payment of accounts of suppliers, return of the obtained short-term loans and loans, etc.) in cash, i.e. an initial element are revenue;

-the indirect method is based on identification and the accounting of the operations connected with cash flow and consecutive correction of net profit, i.e. an initial element is the profit.

The method allows to judge liquidity of the enterprise, in details opening cash flow on its accounts, but doesn't show interrelation of the received financial result and change of size of money. Therefore the indirect method of the analysis allowing to explain the reason of divergences between profit and, for example, reduction of money for the period is applied.

Information support of the analysis - the reporting and data of the Ledger. It is expedient to begin the analysis with an assessment of changes in separate articles of assets of the enterprise and their sources.

Further it is necessary to do adjustments to data of various accounts influencing the profit size. This influence can be multidirectional. The balance equation connecting initial (Bb) and final (Be) balance, and also debit (Td) and credit (Tc) turns is the cornerstone of adjustment.

So, on account 62 "Calculations with buyers and customers" the equation will have an appearance:

Tc = Td - (Bb - Be).

If Be > Bd, i.e. for the period occurred increase in debt of buyers, the real cash flow was lower recorded in the form of No. 2 "Report on financial results and their use" at a size of a difference of the closing and initial balance and this difference has to be excluded from the size of net profit.

Reduction of receivables differently influences profit. So, on account 61 "Calculations for the advance payments issued" the balance equation will have an appearance:

Td = Tc + (Be – Bb).

On an orientation of cash flow allocate two main types of cash flows:

1) the positive – characterizing set of receipts of money on the enterprise from all types of economic operations (as analog of this term the term "inflow of money" is used);

2) the negative – defines set of payments of money by the enterprise in the course of implementation of all types of its economic operations (as analog of this term the term "outflow of money" is used).

Insufficiency of volumes in time of one of these streams causes the subsequent reduction of volumes of other type of these streams. In a control system of cash flows of the enterprise both of this types of cash flows represent uniform (complex) object of financial management.

The positive difference is excluded from net profit and vice versa. According to the similar scheme updating of other active accounts 10 "Materials", 12 "The invaluable and fast-wearing-out subjects" is made. 41 "Goods", etc.

Operations on passive accounts have the return mechanism of impact on cash flow. A turnover of the credit of accounts 02 "Depreciation of fixed assets", 05 "Depreciation of intangible assets" and others it is necessary to add to the sum of net profit.

The result from other realization arises, as, the rule, owing to sale of different types of property. The balance of accounts 47 and 48 gets to a form No. 2, but cash flow arises only at operations on the credit therefore the debit turn needs to be added to net profit. On the credit of account 47 reflect the cost of the credited materials which remained after elimination of fixed assets, as a result the profit grows, but cash flow isn't present therefore this sum has to be excluded from net profit.

Certainly, the described technique is rather labor-consuming in realization therefore its application is expedient only when using tabular processors.

On a method of calculation of volume allocate the following types of cash flows of the enterprise:

– The gross – characterizes all set of receipts or an expenditure of money in the considered time period in a section of its separate intervals;

– The pure – defines a difference between positive and negative cash flows (between receipt and an expenditure of money) in the considered time period in a section of its separate intervals. The pure cash flow is the most important result of financial activity of the enterprise in many respects defining financial balance and rates of increase of its market value. Calculation of a pure cash flow for the enterprise in general, to its separate structural divisions (the centers of responsibility), different types of economic activity or separate economic operations is carried out on the following formula:

PCF = PDP – ODP,

where PCF – the sum of a pure cash flow in the considered time period; PCF – the sum of a positive cash flow (receipts of money) in the considered time period; NCF – the sum of a negative cash flow (an expenditure of money) in the considered time period.

Depending on a ratio of volumes of positive and negative streams the sum of a pure cash flow can be characterized by both the positive, and negative sizes defining the end result of the related economic activity of the enterprise and influencing finally formation of the size of the rest of its monetary assets.

On the level of sufficiency of volume allocate the following types of cash flows of the enterprise:

– The superfluous – characterizes such cash flow at which receipts of money significantly exceed real need of the enterprise for their purposeful expenditure. The certificate of an excess cash flow is the high positive size of the pure cash flow which isn't used in the course of implementation of economic activity of the enterprise;

– The scarce – defines such cash flow at which receipts of money are significantly lower than real needs of the enterprise for their purposeful expenditure. Even at positive value of the sum of a pure cash flow it can be characterized as scarce if this sum doesn't provide planned need for an expenditure of money in all provided directions of economic activity of the enterprise. Negative value of the sum of a pure cash flow automatically does this stream scarce.

On an assessment method in time allocate the following types of cash flows:

– The real – characterizes a cash flow of the enterprise as its uniform comparable size specified at cost to a present situation of time;

– The future – defines a cash flow of the enterprise as its uniform comparable size specified at cost to a concrete forthcoming time point. The concept "future cash flow" can be used and as its nominal size in the forthcoming time point (or in a section of the forthcoming intervals of future period) which is applied to discounting for reduction to the real cost.

On a formation continuity in the considered period distinguish the following types of cash flows of the enterprise:

– The regular – characterizes a stream of receipt or an expenditure of money on separate economic operations (cash flows of one look) which in the considered period of time is carried out constantly on separate intervals of this period. The majority of the cash flows generated by operating activities of the enterprise have this appearance: the streams connected with service of the financial credit in all its forms; the cash flows providing implementation of long-term real investment projects, etc.;

– The discrete – defines the receipt or an expenditure of money connected with implementation of single economic operations of the enterprise in the considered time period. The disposable expenditure of money connected with acquisition of a complete property complex by the enterprise, purchase of the license of franchising, receipt of financial means as free aid, etc. has character of a discrete cash flow.

At a certain minimum time interval all cash flows of the enterprise can be considered as discrete, and, on the contrary – within life cycle of the enterprise the primary part of its cash flows has regular character.

On stability of time intervals of formation regular cash flows are characterized by the following types:

– The regular cash flow with uniform time intervals within the considered period – has character of annuity;

– A regular cash flow with uneven time intervals within the considered period – the schedule of leasing payments for the rented property with the uneven intervals of time of their implementation coordinated by the parties throughout asset leasing term.

On liquidity or change of a pure credit position of the enterprise during the certain period allocate the following types of cash flows:

– The liquid – is one of indicators by means of which estimate change of a financial position of the enterprise in time and characterize change in a pure credit position of the enterprise during the period. Thus the pure credit position — is a positive difference between the sum of the credits obtained by the enterprise, and size of money;

– The illiquid – is characterized on negative change in a pure credit position of the enterprise during the period. Thus understand a negative difference between the sum of the credits obtained by the enterprise, and size of money as a pure credit position.

At the solution of a question of possibility of delivery of the short-term credits the bank interests liquidity of assets of the enterprise and its ability to generate the money necessary for payments on the credits.

The liquid cash flow is closely connected with the indicator of a financial leverage characterizing a limit to which activity of the enterprise can be improved at the expense of the credits of bank. The liquid cash flow is counted on a formula

LCF = – [(LCE + SCE – ME) – (LCB + SCB – MB)],

where LCF – a liquid cash flow; LCE, LCB – the long-term credits respectively for the end and the beginning of the period; SCE, SCB– the short-term credits respectively for the end and the beginning of the period; ME, MB – money respectively for the end and the beginning of the period.

On features of alternation of inflows and outflows in time cash flows can be:

– The relevant – in them the stream with the sign "minus" changes on a stream with the sign "plus" once. Relevant cash flows are characteristic for standard, typical and simplest investment projects in which behind a stage of initial investment of the capital, i.e. outflow of money, long receipts, i.e. inflow of money follow;

– The irrelevant – for them the situation when outflow and inflow of the capital alternate is peculiar.

On nature of balance cash flows subdivide:

– on the softly balanced — it is based on balance of a scarce stream in the long-term period when outside one fiscal year deficiency of a stream on investment activity is overcome and streams on operating and financial activities are subordinated to it. This type of balance is connected with an investment orientation of development of firm;

– the rigidly balanced — is based on balance of a scarce stream in the short-term period on system "accelerations of attraction of money – delays of payments of money" when within one fiscal year deficiency of a stream on operating activities as primary activity is overcome and to it are subordinated short-term financial and investment to activity. This type of balance is connected with maintenance of the current financial stability, solvency and liquidity, focused on short investments of the speculative nature.

On riskiness degree cash flows happen:

– The high risk — represent a flow of innovative projects, especially in an initial stage of their life cycle that is connected with risky investments into innovations. Thus the highest riskiness of cash flows is observed at financial and investment activity before passing of a point of payback or return of investments of the project, and smaller riskiness – at operational;

– The low-risky — exist at traditional kinds of activity of firm, especially in the period of peak of life cycle that is connected with stable generation of the high income during "removal of cream in the market". Thus low riskiness of cash flows is observed at operating activities.

On predictability allocate the following types of cash flows:

– the predicted — when activity of firm is carried out in rather stable financial and economic and political environment, many external negative factors are neutralized, and internal factors are predicted on stories of a sustainable development within representative statistical selections, i.e. systematic risks are neutralized by government policy, and technical internal risks are predicted with high degree of probability;

– not predicted — when activity of firm is carried out in the unstable financial and economic and political environment, many external negative factors prove as uncertainty, and internal factors are predicted because of not representative statistical selections by expert methods, i.e. systematic risks have the high level of uncertainty and are almost not predicted because of crisis of government stabilization policy, and technical internal risks are predicted with low degree of probability.

On controllability cash flows can be:

– the operated — represent domination of those monetary inflows and outflows which the firm can operate, carrying out more vigorous operating and passive financial and investment activity so that to develop on the basis of self-sufficiency and self-financing, i.e. financially independent and independent development of firm at the expense of the internal reserves;

– the uncontrollable — represent domination of those monetary inflows and outflows which the firm can't operate, carrying out vigorous financial and investment activity generally so that to develop on the basis of large-scale external loans at scanty own means and internal reserves, i.e. financially dependent development of firm at the expense of others means — with big debts and small own capital.

On controllability cash flows subdivide:

– for controlled — the stream, inflows and which outflows give in to forecasting and management which balance is formed at the most insignificant deviation from the planned level, i.e. "the plan – the fact – the deviation" is minimum by intermediate and final financial results;

– the uncontrollable — the stream, inflows and which outflows don't give in to forecasting and management, the balance of a stream is formed at a considerable deviation from the planned level, i.e. "the plan – the fact – the deviation" is maximum both on intermediate, and by final financial results.

Whenever possible synchronization cash flows happen:

– the synchronized — the stream at which inflows will be coordinated from time of outflows to the temporary period taking into account seasonal and cyclic distinctions in receipts and an expenditure of money in such a way that is provided increase of level of correlation between positive and negative cash flows in aspiration to +1 value;

– not synchronized— the stream at which inflows won't be coordinated from time of outflows to the temporary period because of essential seasonal and cyclic distinctions in receipts and an expenditure of money in such a way that turns out considerable decrease in level of correlation between positive and negative cash flows, correlation is insignificant is small that can mean its absence.

Whenever possible optimization distinguish cash flows:

– the optimized — the stream, inflows and which outflows give in to alignment and synchronization in time, to smoothing of volumes of inflow and outflow in a section of separate intervals of the temporary period with elimination of essential influence of seasonal and cyclic changes in formation of streams when the average remains of money correspond to average financial requirements of firm;

– not optimized — the stream, inflows and which outflows don't give in to alignment and synchronization in time, volumes of inflow and outflow don't smooth out in a section of separate intervals of the temporary period because of essential influence of seasonal and cyclic changes in formation of streams when the average remains of money don't correspond considerably to average financial requirements of firm.

By efficiency concerning profitability indicators cash flows divide:

– on the effective — the stream which soft balance at the same time promotes profitability growth, especially in such a way that is provided to profitability of own capital the steady growth of the company, and indicators of financial stability and profitability improve at the same time;

– inefficient, but balanced — the stream which rigid balance occurs due to decrease or loss of profitability, especially profitability of own capital in such a way that is provided chronic unprofitability after a covering of the current obligations, and an indicator of strengthening of the current financial stability, solvency, liquidities improves at the price of profitability loss.

The considered classification allows to carry out more purposefully the account, the analysis and planning of cash flows of different types at the enterprise.