7 Tips for Analyzing Cash Flow

7 Tips for Analyzing Cash Flow

There are several important elements in cash flow analysis that you must know. First is the cash flow from business activities. This is the cash flow originating from business activities which include both income and expenditure. For example, receipts from consumers, electricity payments, monthly salary payments, etc.

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The second element is the cash flow from investment activities carried out by the company, both income and expenditure. Such activities include sales and purchases as well as all activities that are related to business capital loans.

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The last one is the cash flow from funding activities. This is the cash flow that comes from funding obtained by the company, such as bond sales, stock emissions, etc. Here are 7 techniques and cash flow analysis tips that you should know.

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1. The right technique in analyzing cash flow

In your opinion, how important is money in your business? Of course it is very important. Money is the one thing that can make your business run smoothly.

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Without cash, for example, a business cannot achieve anything. Cash flow analysis is a method to check the financial health of businesses, both for small businesses and even large scale businesses.

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As a business person, you need to know about the movement of cash in your business. The good news is that with a good cash flow analysis, all cash movements including online loans done by your company can be handled well.

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2. Know the difference in cash budget and cash flow statement

All financial activities carried out by a company are recorded in the cash flow statement based on its classification. So, the cash flow statement can provide information and even help you to do financial evaluations and decision making. Therefore, it is important for you to know the difference between the cash budget and the cash flow statement itself.

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Tracking cash flow in a company is important for the continuity of your business. So accountants usually talk about more comprehensive cash flow statements. Let's look at this in the next discussion.

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3. Prepare a comprehensive cash flow statement

For example, there is a business owner who needs to see the last 2 years of the company's balance sheet. This person also needs to compare the difference between the two years with the aim of developing a cash flow statement properly.

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Other information need to be obtained from the income statement, for example, such as profit or loss and depreciation. The information obtained from a comparative balance sheet is mainly showing how the assets and liabilities in a company have changed. With all this information, you can develop a more comprehensive cash flow statement.

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4. Prepare and analyze the cash flow statement

Preparing and analyzing cash flow statements can be done by looking at the sources and uses of funds from the comparative balance sheet. This allows a company to see the cash needs in the future.

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Here are some cash flow analysis which are very important for you to know. As we discussed earlier, you can also know how to calculate net income more easily from a cash flow analysis. So, the existence of cash flow really plays an important role for a company.

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5. Calculate your company's free cash flow

It is also important for you to know that the calculation of free cash flow in a company is one of the important things that small business owners can have from the analysis of the cash flow statement.

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Free cash flow is the money that a company has after paying all the necessary capital expenditures. This is certainly related to all business expenditures, such as factories or new equipments.

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Free cash flow can even be regarded as the highest standard for the financial health of a company. You should add your company's free cash flow analysis to your cash flow analysis to make the reporting stronger.

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6. Free cash flow calculation

The free cash flow is basically the amount of money left from the cost of running the business. This can later be used for various needs after making payments for business capital expenditures.

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The expenditures Include things like buildings, equipment, and other expenses required to maintain the ongoing operations of the business. There are several ways you can calculate the free cash flow in a company. All should give the same number.

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7. Calculate your cash flow ratio

There are many important financial ratios to know, including those related to operating cash flow, price or cash flow, and cash flow margins. The aim is to help you as a business person to focus on cash flow in the company.

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Calculating the cash flow ratio for your company can certainly provide information about liquidity, solvency, and the feasibility of your business. Hence, you need to add this calculation to your cash flow analysis in order to strengthen your business.

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As additional information, cash is basically an asset that is liquid in nature. Meanwhile, profit can be regarded as everything that is obtained by the business from its operational activities. It is important to note that not all profits are in the form of cash.

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A company that is profitable may not have cash. Companies that have cash may also not be profitable. So, profit and cash cannot be equated.

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Finding unsecured loans for your business is certainly not easy. Aspire is one of the best solutions for business owners to easily get capital. Aspire also offers digital credit cards for small businesses to develop their business.

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The credit line from Aspire can provide fundings within certain limits. With just 1 submission, you can get business credit with interest ranging from 0% to 1%.

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These are the 7 tips in analyzing cash flow and we hope this information is useful and can give you more insights into the business world.