Business — Banking — Management — Marketing & Sales

Analysis of cash flow — way to assess the creditworthiness of the customer of a commercial bank, which is based on the use of actual indicators of turnover at the client during the reporting period. This method of analysis of cash flow is fundamentally different from the method of assessing creditworthiness of the customer on the basis of financial ratios are calculated based on accounting figures in the balances.

Analysis of cash flow is to compare the outflow and inflow of funds from the borrower for the period corresponding to the usual term loan sought. When issuing a loan for a year cash flow analysis is done in the annual cut, up to 90 days — in the quarterly, etc.

Elements inflows for the period are:

• profits earned in that period;

• amortization accrued during the period;

• the release of funds from:

a) stocks;

b) accounts receivable;

c) The fixed assets;

d) other assets;

• Increase in accounts payable;

• Increase in other liabilities;

• increase the share capital;

• issuing new loans.

As elements of the outflow of funds can be identified:

• payment:

a) taxes;

b) interest;

c) dividends;

d) fines and penalties;

• Additional investments in:

a) stocks;

b) accounts receivable;

c) other assets;

d) Fixed Assets;

reduction in accounts payable;

decrease in other liabilities;

outflow of equity capital;

repayment of loans.

The difference between the inflow and outflow determines the overall cash flow. As can be seen from the above list of elements of inflow and outflow of funds, changing the size of inventories, receivables and payables, other assets and liabilities, fixed assets have different effects on the overall cash flow. To determine this effect compares balances Articles stocks, debtors, creditors, etc. at the beginning and end of the period. The growth of the balance of stocks, debtors and other assets during the period means the outflow of funds and shows the calculation with the sign «-«, and a decrease — the flow of funds and fixed with a «+» sign. Growth of creditors and other liabilities is considered as the flow of funds («+»), decrease — as an outflow («-«).

There are features in determining the inflow and outflow of funds due to changes in fixed assets. Take into account not only the increase or decrease the value of their balance for the period, but results of the fixed assets during the period. The excess of selling price over the carrying estimate is regarded as the flow of funds, and the opposite situation as the outflow of funds. Inflow (outflow) of funds in connection with the change in value of assets = value of fixed assets at the end of the period — The value of fixed assets at the beginning of period + The results of the implementation of fixed assets during the period.

Cash flow analysis model is based on the grouping of elements of the inflow and outflow of funds to areas of enterprise management. These spheres in the model analysis of cash flow (ADP) may correspond to the following units:

profit management company;

inventory management and estimates;

management of financial obligations;

management fees and investment;

management by equity and loans.

For the analysis of cash flow data are taken at least three of the past year. If the client had a steady inflow of the excess over the outflow of funds, it is evidence of its financial stability, creditworthiness. Fluctuations in the value of the total cash flow, as well as a brief rise of the outflow over inflow of funds indicates a lower rating of the client’s level of creditworthiness. Finally, the systematic excess of outflows over inflows characterizes the client as creditworthy. The current average positive value of the total cash flow (the excess of inflow over outflow) can be used as the limit of issuing new loans. Specified excess shows to what extent the client can repay the debt over the period. On the basis of the ratio of total cash flow and size of debt the client is determined by its class credit: normative levels of this relationship: I Class — 0,75: II — 0,30; III — 0,25; IV — 0,2; V — 0 , 2; VI — 0,15.

Analysis of cash flow allows us to conclude the weak field of enterprise management. For example, the outflows may be associated with inventory management, settlement (debtors and creditors), the financial payments (taxes, interest, dividends). Identifying the weaknesses of management is used to develop credit conditions, as reflected in the loan agreement. For example, if a major factor in the outflow of funds is unnecessary diversion of funds into the calculations, the «positive» condition of crediting the customer may maintain receivables turnover during the entire period of use of a loan at a certain level. With this factor of the outflow as insufficient value of equity as a condition of lending you can use the standard level of compliance with certain financial ratio leverage.

To resolve the question of the appropriateness and amount of loans on relatively long-term analysis of cash flow is not only on the basis of evidence in the intervening period, but on the basis of forecast data for the planning period. Evidence used to evaluate the predictive data. The basis of the forecast values of individual elements of the inflow and outflow of funds is their average value in the historical and projected rates of growth of sales revenue.