How is the net cash flow and its adequacy ratio

When it is necessary to analyze financial performance, economists use such a thing as free cash flow.Layman is difficult to understand the terminology without explanation.Therefore, the question requires special lighting.

At the end of the reporting period, the computation of cash flow readings a manufacturing company or organization, which included the difference between the cash received and expended.In order to clarify the interpretation of the concept, can refer to the special economic dictionary, where the following definition of cash flow: the so called all funds that remain with the company after the meet cash needs of the business.You can formulate the following definition: net cash flow - the total amount of cash that the company uses for the formation of their capital or investment.

method of calculating net cash flow are financial units in enterprises to monitor incoming and money spent.It is necessary to comply with the financial equilibrium of the enterprise.The quantitative result o

f net cash flow consists of the difference between cash flow positive and negative.The positive is the sum of cash flows to the company, it may be the main income of the company, as well as investing or financing.The negative cash flow is the sum of money to spend.

As a result, the cash flows of the enterprise, taken as a whole, give total.

for the basic form of profit is its activity related to the production, and received as a result of the funds are the proceeds of the sale of goods or services.Finance, that the company's expenses for the main direction of activity is the purchase of raw materials, the salary of employees, payments to suppliers and others.

to the investment of the company is the purchase or sale of non-current assets.For incoming cash flow include dividends and interest that come from securities shares.Expenses will include the acquisition of proprietary rights, intangible assets and licenses to work, the right to use land resources.That is expendable cash flow will be spending and investing in resources that can be profitable in the future.

As the main financial indicators of the company, net cash flow shows how it is a stable and successful.

to analyze cash flows, using coefficient method.It allows to take into account the levels of their deviations from targets, efficient use of the organization of funds.The method detects both negative and positive trends that influence the formation of the cash flow of commercial or industrial organization.Heads important to know these figures to correctly adjust the activities of the company and to optimize it.

When analyzing cash flow take into account the adequacy ratio of net cash flow.To calculate this figure, it is necessary to determine the ratio of net cash flow for the reporting period to the amount of payments on loans (both short and long term), and increase in dividends paid during the period balances of current tangible assets.

to establish summary measure used ratio, showing the effectiveness of existing enterprise cash flows.To do this, find the proportion that has the net cash flow to funds spent during the reporting period.

ratio analysis of financial activity of the enterprise has other indicators, which are calculated by special formulas.This includes the reinvestment rate, liquidity, cash flow, etc. All of them are encouraged to examine the dynamics.